Intra-industry Spill-Over: Evidence from Chinese Bond Default

54 Pages Posted: 7 Dec 2019

See all articles by Xiaolu Hu

Xiaolu Hu

RMIT University - School of Economics, Finance and Marketing

Leslie Luo

University of Melbourne

Vivian Xu

University of Melbourne

Jiang Li

Beijing Shenghuadingxin Investment Company. LTD

Date Written: November 21, 2019

Abstract

We investigate the intra-industry spill-over effect of bond defaults on the price of stocks, outstanding bonds and new bond issuances in China, the largest emerging debt market. We use a sample of A-shares and public corporate debt securities from 2006 to 2018. In the stock market, we find significantly negative reactions from individual industry rivals to industry default while weak reaction from the industry portfolios. In the bond market, both individual firms and industry portfolios witness a strong contagion effect. This contagion effect further spreads to the primary bond market, triggering a surge in the financing cost of the default firm’s competitors after the default. In addition, our study sheds lights on a rich pattern of correlations across default events, which is helpful in improving the understanding of security pricing models and the efficiency of information transfer across markets.

Keywords: Intra-industry; Spill-over; Contagion; Chinese debt market; Default

JEL Classification: G12; G15; G23; G24

Suggested Citation

Hu, Xiaolu and Luo, Haoyi and Xu, Zijin and Li, Jiang, Intra-industry Spill-Over: Evidence from Chinese Bond Default (November 21, 2019). Available at SSRN: https://ssrn.com/abstract=3491040 or http://dx.doi.org/10.2139/ssrn.3491040

Xiaolu Hu (Contact Author)

RMIT University - School of Economics, Finance and Marketing ( email )

Level 12, 239 Bourke Street
Melbourne, Victoria 3000
Australia

Haoyi Luo

University of Melbourne ( email )

Faculty of Economics and Commerce
Parkville, Victoria 3010 3010
Australia

Zijin Xu

University of Melbourne ( email )

Faculty of Economics and Commerce
Parkville, Victoria 3010 3010
Australia

Jiang Li

Beijing Shenghuadingxin Investment Company. LTD ( email )

Beijing
China

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