Behavioural drivers of sustainable debt markets: direct and indirect investor sentiment in global green, social and sustainability bonds

Purpose This study examines how direct and indirect investor sentiment influences the performance of the sustainable debt market using returns on the Global Green, Social and Sustainability (GSS) Bond Index. Design/methodology/approach The analysis covers the global aggregate GSS index and its decomposition from November 1, 2021, to February 28, 2026. A GARCH-MIDAS model is used to quantify the impact of investor sentiment on bond return volatility, while a Quantile-on-Quantile (QQ) approach is applied to explore heterogeneous effects across different quantiles of sentiment and returns. Findings For the combined GSS index, both direct and indirect sentiment positively affect bond return volatility, with indirect sentiment exerting a stronger influence. At the individual index level, green and social bonds are highly sensitive to sentiment, particularly the indirect measure, while sustainability bonds show weak responses. The QQ results indicate similar heterogeneous patterns across indices, with direct sentiment strongest at upper return quantiles and lower Sentix quantiles and indirect sentiment peaking at the upper return tails. Practical implications The findings provide insights for regulators supporting sustainable debt markets and for socially responsible investors involved in valuing sustainable assets or constructing sustainable portfolios. Originality/value This study contributes to the behavioural and sustainable finance literature by demonstrating that sustainable debt is not a homogeneous instrument and investor sentiment is multidimensional. Additionally, it uncovers that sentiment effects on green, social and sustainability bond returns are heterogeneous and state-dependent, which conventional mean-based approaches fail to capture.