Brown Bag Seminar（2021-14）

Finance  Webinar（2021-46)

题目: Overpricing in Local Government Bond Markets and the Unintended Consequences of the Administrative Solutions: Evidence from China

主讲人: 刘晓宇，北京大学

时间: 周五, 11月26日, 12:00–1:00 PM, 北京时间

地点: 成人直播2号楼 K01教室

Abstract

Local government bonds in China experience an obvious overpricing problem in the primary market, thus a lower bound rule for the issuing yield spread is set by the regulatory authority to resolve it. In this paper, we explore the reasons for the overpricing of local government bonds and investigate the impacts of the pricing restrictions. We find that local government bonds issued in provinces where bond underwriters hold more shares in local treasury cash management and where SOEs matter more in the local economy have a lower issuing yield spread, a larger pricing difference between the primary and secondary markets, and worse liquidity after issuance, which indicates that bond underwriters bid up the primary market prices in exchange for other benefits from local governments. We also find that the primary market of local government bonds entirely loses price discovery after the enforcement of lower bound restrictions. Therefore, to better realize the marketization of Chinese local government bond pricing, we should treat the overpricing issue from the underlying reason rather than simply intervening in the price through administrative means.