Air Pollution, Investor Attention, and Greenium: An Attention‐Based View

Abstract

Although prior research has highlighted the growing importance of green bonds and their sensitivity to environmental conditions, evidence regarding the existence of a green‐bond premium (“greenium”) remains inconclusive. As an innovative financial instrument whose valuation depends partly on the credibility of its environmental certification, an intangible attribute shaped by investor perceptions, the greenium may be particularly sensitive to environmental signals. Drawing on the attention‐based view (ABV), this study examines the relationships among air pollution, investor attention to environmental issues, and the greenium, defined as the yield on a green bond minus the yield on an otherwise comparable conventional bond. Using a comprehensive dataset of 3235 green bonds traded in China's secondary bond market between August 1, 2016, and December 31, 2022, we find that air pollution is associated with a larger greenium. We also find that investor attention to environmental issues mediates this relationship. These findings contribute to the literature by shedding light on how environmental conditions and investor attention integrate to affect green‐bond pricing. They also offer practical implications for issuers, investors, and policymakers seeking to foster more resilient green‐bond markets.