Pricing the Pandemic: Evidence from the Bond Market in China

Haoyu Gao, Yiling Ouyang and Huiyu Wen

Emerging Markets Finance and Trade, 2024, vol. 60, issue 1, 59-82

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.

Date: 2024
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DOI: 10.1080/1540496X.2023.2199121

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