Pledgeability and Asset Prices: Evidence from the Chinese Corporate Bond Markets

Abstract

Conference for helpful comments. We thank Tianshu Lyu for excellent research assistance. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peer-reviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.

The Financing of Local Government in China: Stimulus Loan Wanes and Shadow Banking Waxes

“…Lastly, Gao et al (2018) study how the political nexus between local politicians and policy bank officials affects local governments' default decisions on bank loans. Chen et al (2018a) study the pledgeability effect on asset pricing based on a policy shock on Chinese corporate bond markets. ferent reactions of the Big-Four banks and their relatively smaller peers facing stricter liquidity regulation rules after 2009, and explain how small and medium-sized banks' regulatory arbitrage triggered by regulation change on liquidity requirement results in shadow banking, tighter interbank markets, and credit growth as unintended consequences.…”

Chinese Bond Market and Interbank Market

“…6 Suppose investors would like to sell their interbank holdings to the exchange market, perhaps for a better exchange price. According to Chen et al (2018), investors need to apply for transfer of depository from the interbank market (the CCDC) to the exchange (the CSDC), which takes about three to four working days in 2014. The other way around from exchange to interbank will take a slightly longer process (about four to six working days in 2014).…”

“…Given the unique two-market system in Chinse bond markets, it is interesting to compare the market liquidity between the interbank and exchange markets. Figure 5, taken from Chen et al (2018), plots the number of trades and RMB volumes of corporate bonds in these two markets, respectively. Compared to the interbank market, there are way more trading activities in terms of number of trades in the exchange market (90% in terms of number of trades, shown in Panel A), but the volume weighted by trading size is miniscule (5% in terms of RMB volumes, shown in Panel B).…”

“…Starting 2015, the exchange market opened its access to enterprise bonds, which had been issued and traded only in the interbank market before. Chen et al (2018) provides an analysis on the market segmentation of dual-listed enterprise bonds, whose cross-market arbitrage is severely hindered by the transfer-of-depository which is a timeconsuming process. 6…”

Presidential Address: Collateral and Commitment

“…See, for example,Chen et al (2018) for recent evidence and estimation of such a pledgeability premium in Chinese corporate bond markets.…”