Flow-Driven Demand and Price Multiplier: Evidence from Corporate Bond Market (JMP)
The sensitivity of asset prices to investor demand, the price multiplier, captures the fragility of financial markets and the transmission strength of quantity-based policies. This paper documents that price multipliers vary systematically across levels of market aggregation, market structures, and policy regimes. Using the unique institutional setting of China’s segmented bond market—the world’s second largest—I provide the first systematic evidence of exceptionally high price multipliers (e.g. 8.3), an order of magnitude larger than those observed in developed markets. The results reveal pronounced heterogeneity across trading venues and policy environments, indicating that price responses are strongly state-dependent. These findings demonstrate that market design and policy conditions fundamentally influence demand elasticities and price adjustments, offering new empirical foundations for extending demand-based asset pricing to segmented and policy-driven financial systems.
Political Connection and Chinese Bond Market (Revise & Resubmit)
Using a manually collected dataset covering the Chinese corporate bond market from 2008 to 2018, the paper examines the role of political connections in bond pricing. I apply a difference-in-differences (DiD) design around the first SOE default in 2015. The results show that firms with PCs, not only the SOEs, but also certain non-SOEs, experienced an average increase of 60 basis points in bond financing costs relative to firms without PCs, indicating a shift in perceived implicit guarantees. Further analysis reveals heterogeneity in the effects, showing that in highly connected firms, local fiscal capacity plays a key role in lowering bond yields, while firms' fundamentals matter more for less connected firms. Counterintuitively, in regions with strong fiscal capacity, political connections appear to distort bond pricing more significantly, indicating weaker market discipline. These findings suggest that implicit government guarantee (IGG) from political connections can substitute for market discipline to some extent, raising concerns about credit mispricing, particularly in fiscally strong areas.
Reelection Incentives, Political Budget Cycles and Fiscal Policy with Julio Pastrana and Gustavo Torrens (draft coming soon)