Policy signals, credibility and market expectations: Evidence from the Chinese bond market

Na Li, Meile Feng and Rong Liu

Finance Research Letters, 2023, vol. 58, issue PA

Abstract: Based on Chinese bond market transaction data, we study the effects of the Chinese Zeroing Hidden Debt (ZHD) policy on non-pilot regions in 2021 from a market guarantee expectations viewpoint. We find that the market selectively believes more in the bailout signal released by the ZHD pilot than in no-bailout signal, leading to an increase in implicit guarantee expectations instead of a decrease, which is contrary to the original policy intention. And it also has the heterogeneity of this selective belief psychology. We reveal that the market's trust in policy signals distorts policy effects.

Keywords: Policy signals; Credibility; Market guarantee expectations; Asymmetric effects (search for similar items in EconPapers)
JEL-codes: G18 H31 H63 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:58:y:2023:i:pa:s1544612323007596

DOI: 10.1016/j.frl.2023.104387

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