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Price Discovery and Market Segmentation in China's Credit Market

公布时间:2020-05-08浏览次数:105次

Price Discovery and Market Segmentation
in China's Credit Market
Speaker
Prof. Pan Jun
Shanghai Advanced Institute of Finance (SAIF), Shanghai Jiao Tong University
Time
15:00-16:15, May 8th (Fri.)


Abstract

We study the extent of price discovery in the onshore Chinese corporate bond market, focusing in particular on the information content of credit spreads in China. Using Merton's model of default, we construct credit measures of publicly listed firms, using information from their financial statements and stock valuation. We find that, only after the first default in 2014, do credit spreads in China become informative. Compared with the findings in the US credit market, the magnitude of price discovery in the Chinese market is rather limited. We also find that the presence of outside government support for state-owned enterprises (SOEs) in China results in a market segmentation between SOE and non-SOE issuers that is harmful to price efficiency and market stability. Since 2018, the non-SOE issuers have suffered from explosive credit spreads, unprecedented defaults, and shrinking new issuance, while the SOE issuers have remained largely intact. Meanwhile, our default measures show that the non- SOE issuers are in fact stronger in credit quality than their SOE counterparts of the same rating category. Examining the impact of this segmentation on price discovery, we find that non-SOE credit spreads become significantly more informative since 2018, as concerns over credit become front and center for the non-SOE issuers. By contrast, as investors seek safety in SOE bonds, there is no improvement in the information content of SOE credit spreads.


Speaker


Prof. Pan Jun is currently a Professor of Finance at Shanghai Advanced Institute of Finance (SAIF), Shanghai Jiao Tong University. Prior to joining SAIF in 2019, she was the School of Management Distinguished Professor of Finance and Professor of Finance at MIT Sloan School of Management.

Prof. Pan has a B.S. degree in Physics from Shanghai Jiao Tong University, a Ph.D. in Physics from New York University, and a Ph.D. in Finance from Stanford University.