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

70 Pages Posted: 4 Dec 2018 Last revised: 4 Dec 2019

See all articles by Hui Chen

Hui Chen

Massachusetts Institute of Technology; National Bureau of Economic Research (NBER)

Zhuo Chen

Tsinghua University; Tsinghua University - PBC School of Finance

Zhiguo He

University of Chicago - Finance

Jinyu Liu

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

Rengming Xie

Independent

Multiple version iconThere are 2 versions of this paper

Date Written: November 22, 2019

Abstract

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 the 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.

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 (November 22, 2019). University of Chicago, Becker Friedman Institute for Economics Working Paper No. 2018-82. 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
617-324-3896 (Phone)

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Zhuo Chen

Tsinghua University ( email )

43 Chengfu Road
Beijing, 100083
China

Tsinghua University - PBC School of Finance

No. 43, Chengdu Road
Haidian District
Beijing 100083
China

Zhiguo He (Contact Author)

University of Chicago - Finance ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

HOME PAGE: http://www.zhiguohe.com

Jinyu Liu

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

No.10, Huixindong Street, Chaoyang District
Beijing, 100029
China
+8613720001753 (Phone)

HOME PAGE: http://sbf.uibe.edu.cn/szdw/xyjs/zc/57847.htm

Rengming Xie

Independent

No Address Available

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