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Asset Specificity and Prices

Paper Session

Saturday, Jan. 4, 2020 10:15 AM - 12:15 PM (PDT)

Manchester Grand Hyatt, Seaport A
Hosted By: American Finance Association
  • Chair: Liyan Yang, University of Toronto

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

Hui Chen
,
Massachusetts Institute of Technology
Zhuo Chen
,
Tsinghua University
Zhiguo He
,
University of Chicago
Jinyu Liu
,
University of International Business and Economics
Rengming Xie
,
CITIC Securities

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 that feature 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 an increase in the haircut from 0 to 100% would result in an increase in bond yields in the range of 40 to 83 bps. These estimates help us infer the magnitude of the shadow cost of capital in China.

Attention, Social Interaction, and Investor Attraction to Lottery Stocks

Turan Bali
,
Georgetown University
David Hirshleifer
,
University of California-Irvine
Lin Peng
,
City University of New York-Baruch College
Yi Tang
,
Fordham University

Abstract

We test the hypothesis that retail investors' attraction to lottery stocks induces overvaluation, and is amplified by high attention and social interactions. The lottery premium (negative abnormal returns) is stronger for high-retail-ownership stocks—especially those that also have high analyst coverage, high latest absolute earnings surprises, or extreme recent positive returns. The premium is also larger for high-retail-ownership stocks headquartered in counties with high social interactions, proxied by headquarter population density or Facebook social connectivity. Google search activities in response to large extreme returns are also consistent with the role of attention in attracting investors to lottery stocks.

Do Municipal Bond Dealers Give their Customers 'Fair and Reasonable' Pricing?

John Griffin
,
University of Texas-Austin
Nicholas Hirschey
,
London Business School
Samuel Kruger
,
University of Texas-Austin

Abstract

Discussant(s)
Jaewon Choi
,
University of Illinois
Joseph Engelberg
,
University of California-San Diego
Zhaogang Song
,
Johns Hopkins University
JEL Classifications
  • G1 - General Financial Markets