Bond Investors Research Articles

Dynamic connectedness between FinTech and energy markets: Evidence from fat tails, serial dependence, and Bayesian approach

In a complex global environment, modeling the relationships among several markets and asset classes has become more challenging. Literature strives to provide conclusive evidence due to system complexities. Therefore, we investigate the dynamic relationship between Fintech and energy sectors using fat tails, serial dependence, and the Bayesian approach from May 1, 2019, to October 28, 2022. Results unveil significant temporal variations in network interconnections, with an evident increase in interlinkages across short, medium, and long durations due to transient market events. The COVID-19 pandemic and the onset of the Russia-Ukraine conflict have substantially altered the long-term relational dynamics within these networks. An analysis of net directional linkages reveals a pivotal shift in market roles—from being predominantly shock recipients to becoming shock transmitters—highlighted during the COVID-19 pandemic and the initial phase of the Russia-Ukraine War. Initial observations indicate that, amid the global impact of COVID-19, Fintech markets absorbed shocks through investments in green bonds and renewable energy sources like wind, solar, and clean energy. These findings suggest that while Fintech consistently acts as a shock absorber in long-term scenarios, it assumes the role of a shock transmitter during adverse economic states.

Investment modeling between energy futures and responsible investment

This research examines the hedging and diversification ability of energy futures (crude oil, heating oil, natural gas, gasoline, carbon) concerning investment in four different segments of responsible investment. Wavelet coherence and DCC-GARCH are used to inspect the association and volatility transmission between them. Conditional correlation, optimum portfolio weights and hedge ratios are also calculated for real-time data and decomposed series to analyze the optimum portfolio structure. Our analysis reveals that energy futures are more efficient as a hedge to responsible investment during the short-run period. Natural gas is the perfect hedge against all the segments of responsible investment. Each segment of energy futures can hedge investments in sustainability stocks and green bonds. Carbon and Gasoline are not the perfect hedge for ESGL and GCEI but can be used as a cheap hedge. Our study will help responsible investors to hedge their portfolio risk using related assets, countering their familiarity bias.

Air pollution levels enhance green bond investment: green preference and environmental perception thresholds

Environmental change is a crucial factor influencing green investment, and air pollution affects green assets through green preference. This study analyzes the impact of air pollution levels on the green bond using the threshold model. Since investors have physiological thresholds for perceiving air pollution, green preferences change investor behavior once air pollution reaches a certain threshold. The empirical results confirm that at low air pollution levels, weak physical stimuli are not sufficient to induce strong environmental perceptions, resulting in an insignificant role for green preference. However, when air pollution exceeds the threshold, the effect of air pollution becomes significantly positive due to enhanced environmental perceptions. Additionally, major crisis events (e.g. COVID-19) may weaken the role of green preference by distracting investors, leading to an insignificant impact of air pollution on green bonds after the crisis. These findings help enterprises to achieve green transformation and sustainable development through green debt financing.

Analyzing the impact of eco-friendly bonds on economic growth and environmental sustainability

In recent decades, a noticeable uptick has been seen in the issuing of eco-friendly bonds across green, social, and sustainable categories. The study examines their intersection with economic expansion and sustainability using panel data from 82 countries analyzed through robust fixed-effects estimators. The results reveal a significant positive correlation between the issuing of eco-friendly bonds and economic growth. Interestingly, a negative relationship emerges between bond performance and growth, suggesting that the mere issuing of bonds may not be enough to ensure sustainable economic expansion. The importance of refined valuation methods for these bonds is emphasized, along with the risk of economic imbalance caused by the uneven distribution of bond investments across sectors, akin to the "Dutch disease." The need to align investment strategies with both economic and environmental objectives to address challenges like persistent carbon emissions is also stressed. The authors advocate the integrating of considerations of bond issuance and performance into long-term sustainability strategies. Despite holding potential for positive environmental impact, eco-friendly bonds may not consistently drive economic growth as initially anticipated, particularly when balancing the development and carbon-reduction objectives.

Investing in our planet: Examining retail investors' preference for green bond investment

AbstractThe green bond has emerged as an important financial instrument to advance environmentally friendly projects. While institutional investors have shown ample interest in green bonds, retail investors have lagged in their adoption. This study intends to examine the determinants of retail investors' attitude and intention toward green bond investment, utilizing the theory of planned behavior as the fundamental model and incorporating several context‐specific factors. Data from 506 Indian retail investors, representing the majority of Indian states and union territories (UTs), were collected through multi‐stage stratified random sampling. The PLS‐SEM method, coupled with artificial neural network (ANN) analysis and fuzzy set qualitative comparative analysis (fsQCA), was employed to test the hypothesized relationships, ensure the robustness of outcomes, and derive important practical insights. The findings suggest that intrinsic factors (perceived behavioral control and attitude) are superior predictors of investors' behavioral intentions relative to external factors (government policy support and social influence). Further, for green bonds to receive favorable evaluations from investors, they should display adequate financial cum environmental performance. Investors' attitude is significantly influenced by issuers' ratings and their willingness to pay premiums. Environmental concerns and perceived risk also influence investors' attitude toward green bonds, albeit with relatively lower strength. This study holds significance as it offers crucial implications for researchers, market participants, policymakers, and regulators involved in the development of the green bond market.

Investment motives and performance expectations of impact investors

Using a unique sample of retail impact investors, this study evaluates how investors deal with the challenge of aligning their financial and their nonfinancial goals. We find that investors with stronger nonfinancial motives are more likely to expect the overperformance of an impact investment and the underperformance of traditional equity and bond investments than investors with weaker nonfinancial motives. This cross-asset relationship between nonfinancial motives and expected performance indicates that investors form expectations that fit with the investment decisions that their nonfinancial motives are likely to motivate. We also find that after experiencing losses, investors with stronger nonfinancial motives are less likely to revise their expectation that the impact investment will underperform and more likely to expect that the impact investment will overperform than other investors. Our findings provide further evidence that preferences can affect expectations, and challenge conclusions drawn from observed behavior regarding investors’ willingness to pay for impact.

China’s shadow banking in 2020–2022: an empirical study

Despite renewed regulatory attention, shadow banking across the globe is still a nonnegligible part of economic life. This paper researches China’s shadow banking during 2020–2022, a stage marked by COVID-19 and strengthened global regulation on Non-Bank Financial Intermediation (NBFI). Its business model surprisingly resembles its Western peers, funding underserved sectors and having similar exposure to balance sheet mismatch. Uninsured interbank funds and wealth management products support massive holding of bond investment (36.6% of the total assets), making risk contagion easier. This paper re-summarizes growth dynamics in a “Pull-Push” framework and proposes the concept of reintermediation corresponding to disintermediation. Consecutive regulation on NBFI and the real estate sector kept dragging on growth, rendering it in liquidity surplus. We provide empirical evidence on the relationship of China’s shadow banking with macro-finance and note several breakdowns of pre-pandemic relations among economic and financial indicators. The most remarkable breakdown is the weakened functionality of the monetary policy transmission channel. Besides, it continued to twist financial regulatory indicators to a lesser extent.

Certification against greenwashing in nascent bond markets: lessons from African ESG bonds

Africa is one of the most vulnerable continents to climate change. Climate and sustainability-linked bonds can provide funding to African governments and corporations for projects that help to mitigate climate change, combat biodiversity loss, and foster sustainable development. However, less than 0.3% of the global environmental, social, governance (ESG) bond issuance volume is devoted to projects in Africa. Based on the entire universe of 107 African ESG bonds from 42 governmental and corporate issuers over the period 2010–2023, this paper establishes that ESG bonds provide benefits to both issuers and investors in terms of lower spreads and volatility. Our econometric results highlight that greenwashing is a valid concern for investors in African ESG bonds and certification of ESG bonds makes a difference vis-à-vis the self-labeling of green bonds. Non-certified ESG bonds do not offer similar benefits compared to certified ones. Green macro-financial policy and suitable regulation to prevent greenwashing can foster African ESG-bond markets.

Green bond market practices: exploring the moral ‘balance’ of environmental and financial values

ABSTRACT This paper explores why and how green bond investors apply environmental and financial morality. It analyses the coproduction of environmental and financial values in green bond markets using digital ethnography, industry literature and interviews with investors during 2019–2022. It analyses how green bond investors explain and narrate their diverse market practices in the balancing of financial and ethical returns, converging in an unstable space of mutual coproduction. The calculative practices and signalling of green virtue are performed in little machines of ethical inscription but are rarely either empirically validated or explicitly discussed. The green bond universe might appear stable, but its foundations are forged in long-standing intersectional assumptions, as it relies on, and reproduces, the historical structures of racial capitalism. The market practices described here are designed to help green bonds become a mainstream asset class. However, these are reproducing older discursive tropes and growth is elusive.

Neuro quantum-inspired decision-making for investor perception in green and conventional bond investments

The purpose of this study is to make a comprehensive analysis of investor perceptions in the context of green and conventional bond investments. For this purpose, a new model is presented by considering two steps. First, a criteria set is generated by considering balanced scorecard perspectives that are finance, customer, organizational effectiveness and learning and growth. After that, the neuro Quantum fuzzy M-SWARA method is considered to weight these criteria. Secondly, seven critical determinants for bond investments are identified that are coupon rates, volume, maturity, riskiness, liquidity, volatility, and tax considerations. Neuro Quantum fuzzy TOPSIS approach is employed to rank these factors. The main contribution of the study is that by combining the balanced scorecard framework and quantum-inspired decision-making techniques, this paper offers a novel and sophisticated decision-making model to understanding investor behavior. Similarly, in the proposed model, a new methodology is generated by the name of M-SWARA. In this framework, some enhancements are adopted to the SWARA technique. The weighting results indicate that meeting customer expectations is the most critical factor that affects the investor perception to make investments to the bonds. Moreover, according to the ranking results, it is concluded that coupon rates are the most important item for both conventional and green bond investors. On the other hand, with respect to the conventional bond investor, tax is the second most essential factor. However, regarding the green bond investors, volatility plays a critical role. AcknowledgmentThis research has been/was/is funded by the Science Committee of the Ministry of Science and Higher Education of the Republic of Kazakhstan (№ AP 19679105 “Transformation of ESG financial instruments in the context of the development of the green economy of the Republic of Kazakhstan”).

How do credit rating agencies and bond investors react to credit guarantees? Evidence from China’s municipal corporate bond market

How do credit rating agencies and bond investors react to credit guarantees? Evidence from China’s municipal corporate bond market

State corporate tax changes and bond pricing: U.S. evidence

In this study, we empirically investigate whether and to what extent state tax changes may affect the cost of debt. We employ staggered changes in state corporate income tax rates in the U.S. as exogenous shocks and estimate the effects of these state tax changes on bond at-issue yield spreads. We find a significant and positive relation between bond yield spreads and state tax increases but an insignificant relation between bond yield spreads and state tax decreases. On average, tax increases result in an increase of 34 basis points in the average bond yield spread. In addition, we document that bond investors demand higher yield spreads because tax increases aggravate firms' default risk by increasing firm leverage and return volatility. Moreover, we extend our analysis to equity holders and report a negative relation between stock market reaction to bond issuances subject to state tax increases.

Evaluation of the green economic value added index in the game of enterprise capital providers

This study explores the performance evaluation of steel enterprises, emphasizing the importance of green environmental performance. Based on the review of the current situation of green investment research, economic added value evaluation system, and game analysis of enterprise capital providers, this study discusses the comprehensive evaluation of games among enterprise capital providers from the perspective of green economic added value. It constructs a game model of capital providers from the perspective of green investment. This model is based on the probability of creditors making green bond investments and shareholders pledging equity, deriving game results, and using economic added value returns to measure enterprise performance. The main data in this study are from the CSMAR database, a corporate governance project, and the relevant environmental protection data from Nangang's annual report. The results show that the green economic added value return rate is higher than the traditional economic added value return rate, indicating that environmental investments do not reduce the operational performance of enterprises. The game of capital providers leans towards equity investment and does not enhance enterprise performance at the expense of the environment. The green economic added value index only reflects past operational performance, based on which enterprises can design reasonable performance evaluation mechanisms, encouraging capital providers to favor environmental investments. This study has important theoretical and practical significance, guiding enterprises' strategic choices during green transformation.

Implicit government guarantees, media tone and bond pricing

AbstractBy exploiting the first public bond default event in China—the Chaori bond default in 2014—we examine how implicit government guarantees shape the role of media information in bond pricing. We find an insignificant association between preissuance media tones and bond issuances’ yield spreads before the event; however, the association becomes negative and significant after the event. The role of media tone in bond pricing is more pronounced for regions with greater information demand for default risk and for media outlets with stronger information provisions toward implicit government guarantees after the event. Mechanism analyses suggest increased bond investors’ risk awareness, rather than strengthened information provisions in media tones, as the force behind the more pronounced role of media tone in bond pricing. Finally, lower yield spreads driven by more positive media tone do not suggest bond overpricing. Our study reveals the role of media tone in bond pricing and displays the evolution of the media tone's role in bond pricing due to changing institutions.

Strategy Analysis of Financial Neural Network Model in Bond Investment Prediction

In the diversified and complex environment of financial markets, effective investment strategy prediction has become particularly crucial. Especially in the bond market, due to its close connection with macroeconomic factors, the accuracy of predictions is of great significance for investment returns and risk management. This article delves into the application and strategic analysis of financial neural network models in bond investment prediction. We first reviewed the basic architecture of financial neural network models and emphasized their advantages in capturing nonlinear market dynamics. Then, we describe in detail how to use this model to predict the bond market, including the impact of interest rate changes, credit risk and macroeconomic factors. Furthermore, we propose a bond investment strategy framework based on neural network prediction. This framework considers various factors such as market liquidity, bond duration, and credit rating to optimize the returns and risks of investment portfolios. With the further development of deep learning and neural network technology in the financial field, its application potential in bond market prediction and strategy formulation will be more widely recognized and utilized.

The Effects of Foreign Participation on Chinese Government Bond Yields

Abstract Research background Since 2015, when China opened up its onshore bond markets more substantially, foreign investors have significantly increased their investments in Chinese local currency bonds. Purpose This study aims to examine the effects of foreign participation on Chinese government bond yields. Research methodology This study adopts a robust least squares model and a cointegration model. Results (Greater) foreign participation can significantly decrease 10-year Chinese government bond yields. Novelty There are almost no studies of the benefits and costs of foreign participation in Chinese bond markets. The conclusion drawn from this study is the first of its kind in the academic literature on the Chinese market, and contributes to knowledge about foreign participation in local currency bond markets.

The Role of Green Finance in Fostering the Sustainability of the Economy and Renewable Energy Supply: Recent Issues and Challenges

Nowadays, European countries, while implementing the goals of sustainable development, are trying to be energy secure by reducing energy consumption and switching to renewable energy sources; the issue of green bonds is essential in the financing of these projects. This study aims to investigate the current situation and trends in green finance, identifies its problems and challenges, as well as determines the importance of green bonds in sustainability in general and renewable energy supply in particular. The authors conducted a bibliometric analysis of green finance and renewable energy, followed by an extensive literature review identifying the benefits and challenges of green bond investments, continued with an empirical study that included hypothesis testing and the creation and analysis of the EU countries clusters, which have not been sufficiently studied to date. A study examining trends in green finance, identifying its benefits and challenges, found that green bond investments have a positive impact on carbon reduction and renewable energy supply in the EU OECD countries, and cluster analysis of the European OECD countries indicated a positive relationship between economic performance and overall ESG risk.

Delegated Bank Monitoring by Bond Investors: Evidence from Japanese Main Banks

We investigate whether bank monitoring based on private information in private debt reduces the reliance on public earnings information in public debt. We focus on Japanese main banks, which have a high ability to access the private information of borrowing firms by exploiting their position as both large creditors and shareholders. Previous studies show that the Japanese main bank has a strong incentive to monitor borrowing firms when they are performing poorly, while it never intervenes in their management as long as their financial performance is stable. We find that under stable financial conditions in bond-issuing firms, accrual quality is negatively associated with bond yield spreads. In contrast, when bond-issuing firms with a main bank have a high default risk, there is no relationship between accruals quality and bond yield spread. The results suggest that when a main bank has a stronger incentive to monitor its borrowing firms, bondholders are more likely to delegate the screening role to the main bank with private information, leading to a reduction in the reliance on firms’ public earnings information in bond contracts.

Using the Capital Asset Pricing Model and the Fama–French Three-Factor and Five-Factor Models to Manage Stock and Bond Portfolios: Evidence from Timor-Leste

Timor-Leste is a new country still in the process of economic development and does not yet have a capital market for stock and bond investments. These two asset classes have been invested in international capital markets such as the US, the UK, Japan, and Europe. We examine the performance of the capital asset pricing model (CAPM) and the Fama–French three-factor and five-factor models on the excess returns of Timor-Leste’s equity and bond investments in the international market over the period 2006 to 2019. Our empirical results show that the market factor (MKT) is positively and significantly associated with the excess returns of the CAPM and the Fama–French three-factor and five-factor models. Moreover, the two variables Small Minus Big (SMB) as a size factor and High Minus Low (HML) as a value factor have a negative and significant effect on the excess returns in the Fama–French three-factor model and five-factor model. Further analysis revealed that the explanatory power of the Fama–French five-factor model is that the Robust Minus Weak (RMW) factor as a profitability factor is positively and significantly associated with excess returns, while the Conservative Minus Aggressive (CMA) factor as an investment factor is insignificant.

Effect of Firms’ Soundness on Shareholders’ Earnings of Listed Firms at the Nairobi Securities Exchange, Kenya

The global changes in the business environment and the increased demand for improved shareholder’s earnings have prompted big firms to re-examine their soundness. During the 2008 global economic crisis, many big institutions experienced challenges like liquidity challenges, poor leverage, and drop in share prices and decline in assets which led to the decline in the earnings of shareholders. current study was therefore necessary to analyse the effect of firm’s soundness on shareholders earnings of listed firms at the Nairobi Securities Exchange. The specific objectives of the study were: To evaluate the effect of liquidity on the shareholders earnings of firms listed at Nairobi securities exchange, Kenya, to establish the effect of firm size on shareholders earnings of firms listed at Nairobi securities exchange, Kenya, to examine the effect of leverage on shareholders earnings of firms listed at Nairobi securities exchange, Kenya and to analyse the effect of firm’s age on shareholders earnings of firms listed at the Nairobi securities exchange, Kenya. This study is expected to assist businesses in comprehending the soundness that must be emphasized in order to avoid financial losses. As a result, it assist in informing the policies of listed companies in terms of liquidity, leverage, and assets, which is a measure of the firm's size. Firms should be able to develop a policy that improves shareholder earnings based on soundness. Finally, it is expected that shareholders and other potential investors will benefit from a clear understanding of the factors that influence earnings per share within the company. The Modigliani and Miller theory, as well as the Agency theory, were used to guide the research. A descriptive research design was used in this study. The study's target population was all listed companies on the Nairobi Securities Exchange over the period 2015 to 2021. The 64 companies were analyzed using the census study. Data had been collected using a secondary data collection sheet. The study employed secondary data obtained from the published financial statements of the respective firms, from the Nairobi Securities Exchange and the Capital Markets Data. A panel regression model was employed in the analysis of data with the aid of the stata version 14. The study found out that Liquidity had a positive significant effect on the shareholders earnings In addition, firms’ size had a significant and positive effect on the shareholders ‘earnings. Moreover, Leverage had a non significant positive effect on the shareholders earnings .The firms’ age on the other hand has a positive and significant effect on the shareholders earnings.
 The study recommends the following based on the findings. First the listed firms should enhance its liquidity by investing more on liquid assets. This should entail more investments in treasury bills, treasury bonds and other liquid stocks. They should also diversify their investments by investing in money markets. Additionally it should enhance its liquidity by controlling its overheads through getting rid of unnecessary expenses. Secondly, the listed firms needs to expand its asset base. As seen from the findings, firms size had a significant effect on the shareholder’s earnings meaning that the higher the size in terms of total assets, the higher the shareholders earnings. Firms should therefore expand its assets base by developing new products for the customers, increasing its customer base while expanding to new markets. Thirdly, the findings also indicate that firm’s age has a significant effect on the shareholder’s earnings. To sustain its performance and shareholder’s earnings, firms that have been in operation for many years compared to the rest should harness on the experience and economies of scale to ensure that they are able to sustain their performance. This should entail a thorough trend analysis of its performance over the years and designing better strategies based on the past challenges and its internal strengths.