This paper is the first empirical study of the link between investor attention and the green bond market performance. Using daily data of investor attention and green bond indexes, we find that investor attention can influence green bond returns and volatility, however, this relationship is time varying. Our results are relevant for investors as they shed light into the newly developed and fast growing green bond market. Our findings also emphasize the importance of appropriate information and attention for directing financial flows towards sustainable investment.

Introduction

Clean energy finance is crucial to achieve sustainable development goals, yet it still represents a small share of the financial market [10, 7]. This highlights the relevance of informing investors about the behavior of clean energy investments. This paper aims at investigating the impact of investor attention on green bond, a growing market for sustainable investment. Green bond is a new financial product whose proceeds directly benefit environmentally sustainable projects. Between 2012 and 2018, green bond sales grew substantially from $4.2 billion to $167.6 billion [2]. In the future, this market is expected to receive increasing investor attention for several reasons. First, available empirical evidence shows green bonds are weakly correlated with other markets, thus offering diversification benefits to investors.1 Second, concerns over climate change motivate investors to search for environmentally friendly investments. Thus, understanding the interdependence between investor attention and green bond market performance can be useful for policy to promote environmentally friendly finance. This paper is among the first empirical studies of the linkage between green bonds and investor attention. Our empirical results show interdependence between investor attention and green bond market returns and volatility, however, the relationship is time-varying and stronger in the short run. Thus, market attention provides relevant information for investors and policymakers on the dynamics of green bond markets.