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<p>We examine whether, or under what conditions, green bonds offer diversification benefits when included in broad investor portfolios alongside assets from other financial markets. Using stochastic spanning non-parametric tests without any distributional assumptions on returns, we find that US and European investors benefit from adding green bonds to a diversified portfolio. However, the benefits are nuanced and non-robust out-of-sample in the global markets, and we evaluate whether tax incentives can make green bonds uniformly attractive for international investors. We find that with a somewhat lower tax rate and tax credits in case of losses, green assets offer consistent diversification benefits. Tax credits during market downturns preserve the diversification benefits even with higher tax rates.</p>

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Do green bonds provide diversification benefits? The need for tax incentives

  • 期刊论文

  • 出版模式：

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  • 发表日期：

    2025年3月12日

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  • Ellie Papavassiliou,
  • Nikolas Topaloglou,
  • Stavros A. Zenios

摘要

We examine whether, or under what conditions, green bonds offer diversification benefits when included in broad investor portfolios alongside assets from other financial markets. Using stochastic spanning non-parametric tests without any distributional assumptions on returns, we find that US and European investors benefit from adding green bonds to a diversified portfolio. However, the benefits are nuanced and non-robust out-of-sample in the global markets, and we evaluate whether tax incentives can make green bonds uniformly attractive for international investors. We find that with a somewhat lower tax rate and tax credits in case of losses, green assets offer consistent diversification benefits. Tax credits during market downturns preserve the diversification benefits even with higher tax rates.