“My name is bond. Green bond.” Informational efficiency of climate finance markets

This paper investigates the informational efficiency of green bond markets using a recently introduced quantitative measure for market inefficiency. The paper finds that, first, the degree of inefficiency of the green bond market is very similar to that of benchmark bond markets; in addition, fundamental factors that drive bond prices in general also drive prices for green bonds. The green bond market, however, is less affected by challenging environments such as the COVID outbreak in 2020 and the inflation shock in 2022/2023 than the benchmark markets. Second, the paper argues that the arrival of information in a market not only leads to increased price volatility, but also to a larger deviation from the random walk. To illustrate this, the paper uses data from the Philadelphia Fed Survey of Professional Forecasters to measure the degree of disagreement among market participants.