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Pricing the Pandemic: Evidence from the Bond Market in China

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  • Haoyu Gao
  • Yiling Ouyang
  • Huiyu Wen

Abstract

This study investigates whether and how the pandemic is priced in the bond market in China. Using the city-level COVID-19 cases on a daily basis, we find a significant positive relationship between the pandemic outbreak and corporate credit spreads, implying that investor risk perception on pandemic exposure attracts a premium. Consistent with the default risk channel, corporate financial resilience alleviates pandemic pricing. Information asymmetry and tail risk can amplify the pricing effect because of reduced investor risk-bearing capacity. These findings are robust in addressing endogeneity concerns. We contribute to the emerging literature on the pandemic effect on credit markets.

Suggested Citation

  • Haoyu Gao & Yiling Ouyang & Huiyu Wen, 2024. "Pricing the Pandemic: Evidence from the Bond Market in China," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 60(1), pages 59-82, January.
    • Handle: RePEc:mes:emfitr:v:60:y:2024:i:1:p:59-82
    DOI: 10.1080/1540496X.2023.2199121
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