This paper demonstrates that green-labeling forms an integral part of financial investment vehicles. We use data from the EU green bond market to show that green labels reduce the required yields on bonds (the “greenium”) in the long run, with the effect being more pronounced when labels are externally certified. We also find that green bonds can increase investors’ short-term attention when they are externally labeled. Further evidence suggests that the greenium of self-labeled green bonds is mainly attributed to a (...) weak signaling effect, whereas that of externally labeled bonds results from a combination of signaling effect and pro-environmental preferences. Our findings indicate that investors value the reassurance that third-party certifications provide about the ethical use of bond proceeds. This highlights the potential benefits of introducing stricter oversight of green bond proceeds in the bond market. (shrink)

This paper investigates the short-term effects on the price of the ethically screened stocks of the Dow Jones Islamic Market World Index quarterly revisions. Using a sample of 8250 stocks from May 1999 through June 2012, we find a significant price reaction of the ethically screened stocks following additions and deletions. The results show that additions from emerging stock markets tend to experience a greater and significantly positive price response than additions from the developed markets. Further tests reveal that the (...) price reactions following DJIMWI revisions are likely to be driven by shifts in investor sentiment rather than changes in firm fundamentals. (shrink)