Are Green Bonds Special?
Amir Amel-Zadeh∗ Rik Lustermans† Mary Pieterse-Bloem‡
David Dekker§ Dimitris Christopoulos§¶
1st September, 2025
Abstract
Green bonds have become key instruments in satisfying climate investment needs,
yet their secondary market trading behavior remains largely unexplored. Using in-
traday trading data from Europe’s largest corporate bond trading platform from
2017–2023, we find that green bonds exhibit higher liquidity, narrower spreads, and
more muted reactions to market shocks than conventional bonds of the same issuer.
At the same time, we find that due to high demand and limited supply, purchasing
green bonds involves more frictions. Our analysis further reveals positive spillover
effects: issuers of green bonds experience improved liquidity, reduced trading costs,
and lower price volatility also in their conventional bonds suggesting green bond is-
suance leads to overall improvements in the issuer’s information environment. Green
bonds react similarly to credit rating downgrades but show more negative price re-
actions to environmental controversies, consistent with attracting investors driven
by non-pecuniary as well as financial motives.
Keywords: Green bonds, market micro-structure, liquidity, trading costs, spillovers
JEL Codes: G12, G14, G23
∗Corresponding author, Saïd Business School, University of Oxford, amir.amelzadeh@sbs.ox.ac.uk. We
thank participants at the 2024 Yale Initiative for Sustainable Finance Symposium, at the IDRIC Annual
Conference 2024, Manchester, the Decarbonization Finance Series II: The Path to Net Zero Conference
at Panmure House, Edinburgh, and the Annual Conference on CSR, Economy & Financial Markets,
the BAFA-SEAG 2025 Annual Conference, Bristol University, Cardiff Business School and Huddersfield
Business School for comments and suggestions. This research is funded by the Industrial Decarbonisation
Research and Innovation Centre (IDRIC) which is part of the UK government’s Research and Innovation
program on decarbonisation.
†Vrije Universiteit Amsterdam
‡Erasmus University Rotterdam
§Center for Networks and Enterprise Excellence, Heriot-Watt University
¶Modul University, Vienna
1
Amir Amel-Zadeh∗ Rik Lustermans† Mary Pieterse-Bloem‡
David Dekker§ Dimitris Christopoulos§¶
1st September, 2025
Abstract
Green bonds have become key instruments in satisfying climate investment needs,
yet their secondary market trading behavior remains largely unexplored. Using in-
traday trading data from Europe’s largest corporate bond trading platform from
2017–2023, we find that green bonds exhibit higher liquidity, narrower spreads, and
more muted reactions to market shocks than conventional bonds of the same issuer.
At the same time, we find that due to high demand and limited supply, purchasing
green bonds involves more frictions. Our analysis further reveals positive spillover
effects: issuers of green bonds experience improved liquidity, reduced trading costs,
and lower price volatility also in their conventional bonds suggesting green bond is-
suance leads to overall improvements in the issuer’s information environment. Green
bonds react similarly to credit rating downgrades but show more negative price re-
actions to environmental controversies, consistent with attracting investors driven
by non-pecuniary as well as financial motives.
Keywords: Green bonds, market micro-structure, liquidity, trading costs, spillovers
JEL Codes: G12, G14, G23
∗Corresponding author, Saïd Business School, University of Oxford, amir.amelzadeh@sbs.ox.ac.uk. We
thank participants at the 2024 Yale Initiative for Sustainable Finance Symposium, at the IDRIC Annual
Conference 2024, Manchester, the Decarbonization Finance Series II: The Path to Net Zero Conference
at Panmure House, Edinburgh, and the Annual Conference on CSR, Economy & Financial Markets,
the BAFA-SEAG 2025 Annual Conference, Bristol University, Cardiff Business School and Huddersfield
Business School for comments and suggestions. This research is funded by the Industrial Decarbonisation
Research and Innovation Centre (IDRIC) which is part of the UK government’s Research and Innovation
program on decarbonisation.
†Vrije Universiteit Amsterdam
‡Erasmus University Rotterdam
§Center for Networks and Enterprise Excellence, Heriot-Watt University
¶Modul University, Vienna
1
1 Introduction
Green bonds, a rapidly growing segment of corporate bond markets, are designed to fi-
nance projects with positive environmental or climate benefits. Issued by corporations,
governments, and financial institutions, they have become a central instrument for mo-
bilizing capital to address climate change. Academic interest in green bonds has grown
in parallel, with studies focusing on their use-of-proceeds restrictions and issuance pre-
mium—commonly referred to as the “greenium” (Zerbib, 2019; Flammer, 2021; Baker
et al., 2022). However, despite the expanding literature on green bond issuance and
pricing, comparatively little is known about their trading behavior in secondary mar-
kets—a critical omission given the growing institutional allocation to green fixed income
assets, where secondary market liquidity, execution efficiency, and pricing dynamics di-
rectly influence portfolio construction, risk management, and the scalability of sustainable
investment strategies.
This paper fills that gap by examining whether green bonds exhibit systematically
different secondary market trading characteristics, including execution quality, dealer
quoting behavior, and liquidity, compared to matched conventional bonds. By focus-
ing on actual trading behavior rather than primary market pricing, our study brings
new evidence to bear on whether green bonds are functionally distinct in the way they
trade—and thereby sheds light on the role of non-pecuniary investor preferences, market
segmentation, and sustainability disclosures in shaping bond market microstructure.
Conceptually, the prior theoretical and empirical literature suggests several potential
reasons why the trading of green bonds might differ from the trading of conventional
bonds.
First, green bonds are likely to attract a distinct investor clientele characterized by
long-term horizons and non-pecuniary preferences for environmental impact (Flammer,
2021; Tang and Zhang, 2020). For example, Flammer (2021) shows that green bond is-
suance leads to increased ownership by long-term and environmentally focused investors,
while Tang and Zhang (2020) document a concurrent rise in institutional ownership and
improved equity market liquidity for issuers. These effects are consistent with asset pric-
2
Green bonds, a rapidly growing segment of corporate bond markets, are designed to fi-
nance projects with positive environmental or climate benefits. Issued by corporations,
governments, and financial institutions, they have become a central instrument for mo-
bilizing capital to address climate change. Academic interest in green bonds has grown
in parallel, with studies focusing on their use-of-proceeds restrictions and issuance pre-
mium—commonly referred to as the “greenium” (Zerbib, 2019; Flammer, 2021; Baker
et al., 2022). However, despite the expanding literature on green bond issuance and
pricing, comparatively little is known about their trading behavior in secondary mar-
kets—a critical omission given the growing institutional allocation to green fixed income
assets, where secondary market liquidity, execution efficiency, and pricing dynamics di-
rectly influence portfolio construction, risk management, and the scalability of sustainable
investment strategies.
This paper fills that gap by examining whether green bonds exhibit systematically
different secondary market trading characteristics, including execution quality, dealer
quoting behavior, and liquidity, compared to matched conventional bonds. By focus-
ing on actual trading behavior rather than primary market pricing, our study brings
new evidence to bear on whether green bonds are functionally distinct in the way they
trade—and thereby sheds light on the role of non-pecuniary investor preferences, market
segmentation, and sustainability disclosures in shaping bond market microstructure.
Conceptually, the prior theoretical and empirical literature suggests several potential
reasons why the trading of green bonds might differ from the trading of conventional
bonds.
First, green bonds are likely to attract a distinct investor clientele characterized by
long-term horizons and non-pecuniary preferences for environmental impact (Flammer,
2021; Tang and Zhang, 2020). For example, Flammer (2021) shows that green bond is-
suance leads to increased ownership by long-term and environmentally focused investors,
while Tang and Zhang (2020) document a concurrent rise in institutional ownership and
improved equity market liquidity for issuers. These effects are consistent with asset pric-
2
