Counter‐Credit‐Risk Yield Spreads: A Puzzle in China's Corporate Bond Market

39 Pages Posted: 3 Jun 2016

See all articles by Jian Luo

Jian Luo

Xiamen University - Wang Yanan Institute for Studies in Economics (WISE)

Xiaoxia Ye

University of Liverpool Management School

May Hu

Deakin University

Date Written: June 2016

Abstract

In this paper, using China's risk‐free and corporate zero yields together with aggregate credit risk measures and various control variables from 2006 to 2013, we document a puzzle of counter‐credit‐risk corporate yield spreads. We interpret this puzzle as a symptom of the immaturity of China's credit bond market, which reveals a distorted pricing mechanism latent in the fundamental of this market. We also find interesting results about relationships between corporate yield spreads and interest rates and risk premia and the stock index, and these results are somewhat attributed to this puzzle.

Suggested Citation

Luo, Jian and Ye, Xiaoxia and Hu, May, Counter‐Credit‐Risk Yield Spreads: A Puzzle in China's Corporate Bond Market (June 2016). International Review of Finance, Vol. 16, Issue 2, pp. 203-241, 2016, Available at SSRN: https://ssrn.com/abstract=2788300 or http://dx.doi.org/10.1111/irfi.12079

Jian Luo (Contact Author)

Xiamen University - Wang Yanan Institute for Studies in Economics (WISE) ( email )

A 307, Economics Building
Xiamen, Fujian 10246
China

Xiaoxia Ye

University of Liverpool Management School ( email )

Chatham Street
Liverpool, L69 7ZH
United Kingdom

May Hu

Deakin University ( email )

Graduate School of Business
Melbourne, Victoria 3125
Australia

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