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Emerging Markets Finance and Trade Volume 55, 2019 - Issue 13
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Symposium on Chinese Derivatives Markets, Guest editors: Ke Tang, Tsinghua University, and Ali M. Kutan, Southern Illinois University Edwardsville

An Empirical Analysis of the Impact of Credit Risk Mitigation Warrants on Bonds: Evidence in Chinese Markets

Ping LiSchool of Economics and Management, Beihang University, Beijing, China;Key Laboratory of Complex System Analysis, Ministry of Education, Management and Decision (Beihang University), Beijing, ChinaCorrespondence[email protected]
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,
Hui MengSchool of Economics and Management, Beihang University, Beijing, China;Key Laboratory of Complex System Analysis, Ministry of Education, Management and Decision (Beihang University), Beijing, ChinaView further author information
&
Zengpeng LiSchool of Economics and Management, Beihang University, Beijing, ChinaView further author information
Pages 2970-2981 | Published online: 22 Apr 2019
 
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ABSTRACT

Credit risk mitigation warrants (CRMW), sometimes called Chinese credit default swaps (CDS), are created by institutions other than the issuer of an underlying bond to provide credit risk protection for the holder of the warrant on the underlying debt. In this paper, we investigate the impact of CRMW on the Chinese bond market by examining whether trading in them is beneficial for the underlying secondary corporate bond market. We employ period-partitioned regressions to analyze all the observations in our dataset in the absence of continuous daily trading, because bonds often trade discretely. We find that after CRMW trading was introduced, the efficiency of the bond market improved, but not bond pricing and liquidity.

JEL:

Additional information

Funding

This work is supported by the National Natural Science Foundation of China (No. 71571008; 71271015).

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