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Investor strategies and Liquidity Premia in the European Green Bond market

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Abstract

This paper studies the term structure of the liquidity premium of the European green bond market along three liquidity (short-term, medium-term, and long-term) premia. If the liquidity premium is an increasing function of bond’s maturity, the estimated sizes of liquidity premia are comparable to those found on the German government bond markets. We then show that liquidity premia are moderately sensitive to economic determinants. Moreover, we detect a liquidity clientele effect on the ask side, which contributes to increase all liquidity premia. This clientele effect is, however, mitigated by spillover effects operating from the short-end to the long-end of the term structure and vice versa. In sum, our results deliver valuable insights on investors’ strategies in the European green bond market, notably those of long-term investors who are not only compensated for their higher illiquidity risks but also provide market stability with their buy and hold strategies.
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hal-02544451 , version 1 (25-06-2020)

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  • HAL Id : hal-02544451 , version 1

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Mohamed Amine Boutabba, Yves Rannou. Investor strategies and Liquidity Premia in the European Green Bond market. 6th International Symposium in Computational Economics and Finance, Oct 2020, Paris, France. ⟨hal-02544451⟩
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