Research / BFI Working Paper•Nov 20, 2019

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

Hui Chen, Zhuo Chen, Zhiguo He, Jinyu Liu, Rengming Xie

We provide causal evidence for the value of asset pledgeability. Our empirical strategy is based on a unique feature of the Chinese corporate bond markets, where bonds with identical fundamentals are simultaneously traded on two segmented markets that feature different rules for repo transactions. We utilize a policy shock on December 8, 2014, which rendered a class of AA+ and AA bonds ineligible for repo on one of the two markets. By comparing how bond prices changed across markets and rating classes around this event, we estimate that an increase in haircut from 0 to 100% would result in an increase in bond yields in the range of 40 to 83 bps. These estimates help us infer the magnitude of the shadow cost of capital in China.

More Research From These Scholars

BFI Working Paper • Jun 15, 2020

Treasury Inconvenience Yields during the COVID-19 Crisis

Zhiguo He, Stefan Nagel, Zhaogang Song
Topics:  COVID-19, Financial Markets
BFI Working Paper • Jan 11, 2022

Share Pledging in China: Funding Listed Firms or Funding Entrepreneurship?

Zhiguo He, Bibo Liu, Feifei Zhu
Topics:  Financial Markets
BFI Working Paper • Nov 23, 2020

Open Banking: Credit Market Competition When Borrowers Own the Data

Zhiguo He, Jing Huang, Jidong Zhou
Topics:  Uncategorized