Are Credit Ratings Relevant in China’s Corporate Bond Market?

Dhawan, Ravi; Yu, Fan

doi:10.1080/10971475.2015.1031614

Cited by 18 publications

(6 citation statements)

References 23 publications

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“…Meanwhile, the emergence of commercial paper in 2005 became the prelude to the explosion of the corporate bond market. The People's Bank of China (PBOC) allowed all institutional investor, including commercial banks, to invest corporate bonds, laying a foundation for the development of the bond market [82]. Moreover, the Amendment to Securities Law of the PBOC in 2005 strengthened the protection of individual investors, which led to investor sentiment being in tune with market trends.…”

Section: Datamentioning

confidence: 99%

“…When investor sentiment is relatively high, investors are more likely to be overly optimistic in judging the stock price. In contrast, other relatively rational investors with higher risk aversion prefer the corporate bond market, where returns are guaranteed and risks are relatively low [82]. In periods of pessimism, safe-haven government bonds tend to be a better choice than corporate bonds, which have semblable risk exposure with stocks [94].…”

Section: Empirical Analysismentioning

confidence: 99%

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Can Stock Investor Sentiment Be Contagious in China?

Cai

Ran

2020

Sustainability

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This paper explores the impact of investor sentiment on financial markets in China by taking the quantile causality test. We find that government bond markets, gold markets, and foreign exchange markets are affected by stock investor sentiment, except for in the corporate bond market. In extreme situations, such as excessively optimistic or pessimistic sentiment, these markets will become more vulnerable to suffering from drastic fluctuations. On the contrary, the market return in government bonds, corporate bonds, and foreign exchange also has an influence on stock investor sentiment. Moreover, these links show various asymmetry due to the heterogeneity of different financial markets. Our results are consistent with the noise trader model, which shows the impact of investor sentiment on market returns. Hence, the authorities can sustain the stabilization of financial markets by reducing information asymmetry, guiding the rational sentiment of investors, and increasing effective regulations.Especially in certain extreme pessimistic situations, sentiment in the stock market can lead to drastic fluctuations in other financial markets [15,16], and the authorities cannot maintain market stability and continuity of development. In turn, the performance of these markets is also a remarkable barometer that leads stock investor sentiment to change [17]. Through information in different market environments, external shocks, not only make asset price fluctuate, but also result in stock investors overreacting, and this affects their investment expectations [18]. This bidirectional transmission is regarded as an important factor for the linkage among major financial markets [19]. Hence, investor sentiment plays an important role in the formation of financial market effectiveness. If investor sentiment cannot be reasonably guided, it will be difficult to suppress irrational trading and speculative bubbles and improve market efficiency.Compared with stock markets in developed countries, individual investors account for a large proportion of Chinese stock investors, which makes the whole market more emotional [20]. With a lack of social responsibility and an awareness of sustaining market efficiency, the individual Chinese investor has an underdeveloped investment education and, thus, they often show irrational investment behavior [21]. Hence, market fluctuation frequently happens, and it is difficult for investor sentiment to be properly guided. Not only do investors make irrational trades in the stock market, but they are also more likely to carry their emotions to other markets [22]. If investor sentiment in the stock market spreads to other markets and causes unexpected fluctuations in China, the pricing and operating efficiency of many financial markets will be damaged. As well as the stock market, the gold, bond, and foreign exchange markets are all financial markets with a large scale in China. If such emotional contagion exists in China, investors who excessively ignore the fundamentals will find it difficult to form th...

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Section: Datamentioning

confidence: 99%

Section: Empirical Analysismentioning

confidence: 99%

Can Stock Investor Sentiment Be Contagious in China?

Cai

Ran

2020

Sustainability

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“…This suggests that investors do not use credit ratings to determine the risk premiums on Tunisian corporate bonds, which contradicts Dhawan and Yu's (2015) empirical findings.…”

Section: Credit Rating Agencymentioning

confidence: 72%

Tunisian corporate bond market liquidity: a qualitative approach

Berrich¹,

Dabbou

2023

QRFM

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Purpose This study aims to explore the failures of Tunisian secondary corporate bond market liquidity to understand the determinants of corporate bond market liquidity at large. Design/methodology/approach We adopted a qualitative approach to studying the Tunisian Stock Exchange. Dealers’ perceptions were collected through semi-structured face-to-face interviews; the data was recorded, transcribed and thematically analysed. Findings Secondary corporate bond market failures are due, in part, to microstructural choices – especially the use of an over-the-counter market as a trading venue. The absence of a corporate bond yield curve, a narrow investor base, market participants’ lack of financial education and authorities’ attitudes are equally responsible. Research limitations/implications This study is useful to researchers, policymakers and practitioners, as it identifies microstructural and other factors affecting the Tunisian secondary corporate bond market. We interviewed only Tunisian dealers while ignoring other categories of market participants. Furthermore, a focus group discussion could have improved our understanding of the determinants of the Tunisian secondary corporate bond market. Originality/value This paper aimed to qualitatively discuss several issues related to the Tunisian secondary corporate bond market. To date, little academic research has addressed this topic in the illiquid and non-transparent corporate bond markets.

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“…Generally, the development of corporate bond financing plays an important role in optimizing the corporate financing structure, releasing the risk of the financial system and promoting the healthy development of the capital market. At present, means of forecasting credit risk mainly relies on credit rating [43]. A credit rating agency approved by the government is part of the prerequisites for issuing bonds, and the credit rating is the key factor determining the scale of bond issuance and interest rate.…”

Section: Risksmentioning

confidence: 99%

Assessing the Credit Risk of Corporate Bonds Based on Factor Analysis and Logistic Regress Analysis Techniques: Evidence from New Energy Enterprises in China

Liu

et al. 2018

Sustainability

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In recent years, new energy sources have ushered in tremendous opportunities for development. The difficulties to finance new energy enterprises (NEEs) can be estimated through issuing corporate bonds. However, there are few scientific and reasonable methods to assess the credit risk of NEE bonds, which is not conducive to the healthy development of NEEs. Based on this, this paper analyzes the advantages and risks of NEEs issuing bonds and the main factors affecting the credit risk of NEE bonds, constructs a hybrid model for assessing the credit risk of NEE bonds based on factor analysis and logistic regress analysis techniques, and verifies the applicability and effectiveness of the model employing relevant data from 46 Chinese NEEs. The results show that the main factors affecting the credit risk of NEE bonds are internal factors involving the company's profitability, solvency, operational ability, growth potential, asset structure and viability, and external factors including macroeconomic environment and energy policy support. Based on the empirical results and the exact situation of China's NEE bonds, this article finally puts forward several targeted recommendations.

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Are Credit Ratings Relevant in China’s Corporate Bond Market?

Cited by 18 publications

References 23 publications

Can Stock Investor Sentiment Be Contagious in China?

Can Stock Investor Sentiment Be Contagious in China?

Tunisian corporate bond market liquidity: a qualitative approach

Assessing the Credit Risk of Corporate Bonds Based on Factor Analysis and Logistic Regress Analysis Techniques: Evidence from New Energy Enterprises in China

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