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Counter‐Credit‐Risk Yield Spreads: A Puzzle in China's Corporate Bond Market
Author(s) -
Luo Jian,
Ye Xiaoxia,
Hu May
Publication year - 2016
Publication title -
international review of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.489
H-Index - 18
eISSN - 1468-2443
pISSN - 1369-412X
DOI - 10.1111/irfi.12079
Subject(s) - corporate bond , credit risk , credit spread (options) , bond , yield (engineering) , economics , financial economics , monetary economics , bond market , china , credit default swap index , stock market , business , credit valuation adjustment , actuarial science , finance , credit reference , paleontology , materials science , horse , biology , political science , law , metallurgy
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.