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

85 Pages Posted: 4 Dec 2018 Last revised: 24 Jun 2023

See all articles by Hui Chen

Hui Chen

Massachusetts Institute of Technology

Zhuo Chen

Tsinghua University - PBC School of Finance

Zhiguo He

Stanford University - Knight Management Center

Jinyu Liu

University of International Business and Economics (UIBE) - School of Banking and Finance

Rengming Xie

CITIC Securities

Multiple version iconThere are 2 versions of this paper

Date Written: June 24, 2023

Abstract

We provide causal evidence on the value of asset pledgeability by exploiting a unique feature of Chinese corporate bond markets: bonds with identical fundamentals are traded on two segmented markets with different rules for repo transactions. Using a policy shock that rendered AA+ and AA bonds ineligible for repo on one market only, we compare how bond prices changed across markets and rating classes around this event. When the haircut increases from 0% to 100%, bond yields increase by 39 bps to 85 bps. These estimates help us infer the magnitude of the shadow cost of capital in China.

Keywords: Pledgeability, haircut, repo, interbank and exchange markets, enterprise bonds, shadow cost of capital

Suggested Citation

Chen, Hui and Chen, Zhuo and He, Zhiguo and Liu, Jinyu and Xie, Rengming, Pledgeability and Asset Prices: Evidence from the Chinese Corporate Bond Markets (June 24, 2023). University of Chicago, Becker Friedman Institute for Economics Working Paper No. 2018-82, PBCSF-NIFR Research Paper, Journal of Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3295202 or http://dx.doi.org/10.2139/ssrn.3295202

Hui Chen

Massachusetts Institute of Technology ( email )

50 Memorial Drive
Cambridge, MA 02142
United States
+1 (617) 324-3896 (Phone)

Zhuo Chen

Tsinghua University - PBC School of Finance

No. 43, Chengdu Road
Haidian District
Beijing, Beijing 100083
China

Zhiguo He (Contact Author)

Stanford University - Knight Management Center ( email )

655 Knight Way
Stanford, CA 94305-7298
United States

Jinyu Liu

University of International Business and Economics (UIBE) - School of Banking and Finance ( email )

No.10, Huixindong Street, Chaoyang District
Beijing, 100029
China

Rengming Xie

CITIC Securities ( email )

Beijing
China

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