Does Green Incentive Exist In China's Bond Market?

China's green financial market is gradually expanding with the support of related policies.The number of researches on green finance has gradually increased,mostly on the theory and policy advice of green finance.There is little research on the empirical tests of green finance.The paper attempts to analyze the characteristics of the yield and risk of green bonds from financing and investment,with a view to providing references for entities and financial institutions to issue green bonds and advice for related department to make policies.In the aspect of the issuance situation of green bonds,the paper conducts statistical analysis on the scale,issuing subject,rating and area of green bonds.China's green bond market was officially launched in 2015.The scale of green bonds has developed rapidly in the next two years and the maturity of green bonds shows an upward trend year by year.China's green bond market is mainly issued by banks,reflecting that the role of financial institutions is significant.In the aspect of financing,the financing cost of green bonds is significantly lower than that of ordinary bonds since the issuers of green bonds are mostly large financial institutions or well-honored industry leading enterprises,the funds raised from green bonds have specific uses to green projects,and tax incentives and other supporting measures are expected to be gradually implemented.The paper introduces dummy variables and takes empirical tests using multiple regression methods.The results show that there is a green incentive in the aspect of financing of China's bond market,which means the issuance rate of green bonds is significantly lower than that of other bonds.In the aspect of investment,the different terms of green bonds have different characteristics of returns and risk.Long-term green bonds can benefit from green projects returns,and as a consequence,default risk of long-term green bonds is lower than that of ordinary bonds.The short-term green bonds can benefit from the support of policy and high social attention,and as a consequence,default risk is lower than that of ordinary bonds.However,the preferential tax policies for green bond market have not yet been implemented,and the future of green bonds is still not clear in the next 5-10 years.As a consequence,the risk of medium-term green bond is higher than that of ordinary bonds.The paper divides the bonds into six combinations of short-term green bonds,medium-term green bonds,long-term green bonds,short-term ordinary bonds,medium-term ordinary bonds,and long-term ordinary bonds.The Fama-French's two-factor model regression test results show that the excess return of short-term green bonds and long-term green bonds is lower than that of ordinary bonds,while the excess return of medium-term green bonds is much higher than that of medium-term ordinary bonds.Furthermore,the paper simulates the term structure of interest rates of green bonds and the results show that the term structure of the interest rate of green bonds shows an inverted U-shaped structure.Government should gradually improve the supporting measures in fiscal and taxation preferences,information disclosure and subsidies to strengthen the financing advantages of green bonds.Besides,government should formulate relevant incentive measures to guide the society capital to pay attention to the unique risk-return characteristics of green bonds and manage segmented to different term of green bond to strengthen the investment and allocation advantages of green bonds.