Factor Investing in the Green Bond Market

This paper extends upon factor investing in the bond market by exploiting seven investment strategies in the green bond market. The considered factors are based on measures of Carry, Value, Momentum and Quality. It is found that the individual factor portfolios, except Value, neither substantially outperform the risk free rate nor exhibit abnormal returns. Moreover, there is evidence that long-only portfolios compare favourably with long-short portfolios in terms of Sharpe ratios. Finally, it is found that diversifying across the individual factor portfolios in a sophisticated way substantially improves Sharpe ratio.