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

86 Pages Posted: 3 Dec 2019 Last revised: 27 Jun 2022

See all articles by Hui Chen

Hui Chen

Massachusetts Institute of Technology

Zhuo Chen

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

CITIC Securities

Multiple version iconThere are 2 versions of this paper

Date Written: November 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 with 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 when the haircut increases from 0 to 100%, the bond yields increase in the range of 39 to 85 bps. These estimates help us infer the magnitude of the shadow cost of capital in China.

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 2019). NBER Working Paper No. w26520, Available at SSRN: https://ssrn.com/abstract=3496495

Hui Chen (Contact Author)

Massachusetts Institute of Technology ( email )

50 Memorial Drive
Cambridge, MA 02142
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+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

University of Chicago - Finance ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

HOME PAGE: http://https://voices.uchicago.edu/zhiguohe/

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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