We propose a model of trading in the over-the-counter corporate bond market where investors can buy and sell bonds through a dealer and can short bonds by borrowing them in the securities lending market. The model predicts that higher dealer inventory costs are associated with lower short interest for bonds, particularly for high-credit-quality bonds. We construct bond-level proxies for inventory costs and provide empirical evidence in support of the model's prediction. We find that much of the dramatic decline in short interest observed since the Great Financial Crisis (GFC) can be explained by an increase in proxies for inventory costs. We document that the short-sale constraints imposed by higher dealer inventory costs have had a negative impact on price efficiency. Our findings suggest that tighter post-GFC regulation may have had unintended consequences for bond market quality.

Studies of the dynamics of bond risk premia that do not account for the corresponding dynamics of bond risk are hard to interpret. We propose a new approach to modeling bond risk and risk premia. For each of the US and China, we reduce the government bond market to its first two principal-component bond-factor portfolios. For each bond-factor portfolio, we estimate the joint dynamics of its volatility and Sharpe ratio as functions of yield curve variables, and of VIX in the US. We have three main findings.(1) There is an important second factor in bond risk premia. (2) Time variation in bond return volatility is as important as time variation in bond Sharpe ratios. (3) Bond risk premia are solely compensation for bond risk, as no-arbitrage theory predicts. Our approach also allows us to document interesting cyclical and secular time-variation in the term structure of bond risk premia in both the US and China.

Although big data technologies such as digital contact tracing and health certification apps have been widely used to combat the COVID-19 pandemic, little empirical evidence regarding their effectiveness is available. This paper studies the economic and public health effects of the "Health Code" app in China. By exploiting the staggered implementation of this technology across 322 Chinese cities, I find that this big data technology significantly reduced virus transmission and facilitated economic recovery during the pandemic. A macroeconomic Susceptible-Infectious-Recovered (SIR) model calibrated to the micro-level estimates shows that the technology reduced the economic loss by 0.5% of GDP and saved more than 200,000 lives by alleviating informational frictions during the COVID-19 outbreak.

Convertible bonds were first introduced in China in 1998. Their popularity has risen in the past decades through various domestic regulatory reforms, as more and more companies came to recognize their advantages over conventional bond or equity issuances as ways to raise capital. In this paper, we study the role of convertible bonds in Chinese A-share listed companies’ decision to refinance, using data from 1999 to 2018. First, we find that firms with high information asymmetry tend to issue more convertible bonds than equities to mitigate financing cost, especially under the “Regulation of Restraining Non-public Issuance of Shares (NPIS)” launched in 2017, a regulation that retrains listed companies to issue shares non-publicly. Second, the introduction of “Breaking Rigid Redemption” policy, which breaks the custom of using rigid redemption clauses when financial institutes issue corporate bonds and asset management products, effectively promoted interest rate marketization in China and as a result, companies with a strong tendency to shift risks began to issue convertible bonds to reduce issuing cost after 2017. Third, regulatory requirements on the qualifications for companies played important roles in their refinancing choices. Lastly, we also find that SOEs in China are overall less sensitive to risk-shifting and information asymmetry, given their ample loan resources compared with non-SOEs. Our findings delineate the behaviors of Chinese A-share listed companies in their refinancing and explain the sudden surge in convertible bonds issuance since 2017.

China's local government debt financing grows rapidly featuring surging chengtou bond issuance and risk exposure since the global financial crisis in 2008. The accumulation of local government debt poses systemic risks to China's fiscal and financial systems. Using weekly data from 2009 to 2014, this paper studies the joint dynamics and risk transmission mechanism between chengtou bond spreads and treasury yields under the framework of the extended no-arbitrage Nelson-Seigel term structure model, which guarantees the no-arbitrage relationship between treasury yields of different maturities. The results show that the chengtou bonds indeed exhibit considerable local risks and can lead to systemic risk of the treasury bonds, such that the treasury yields have significant component of risk premium due to chengtou risk. On the other hand, as the safest asset in China at present, the treasury yields with short-to-medium maturities decrease as a result of the “fly-to-safety" effect when the chengtou risk increases. Meanwhile, the dynamics of chengtou bond spreads reflect the market-oriented risk pricing by investors on credit and liquidity risks under limitations of the government implicit guarantee. Under this condition, it is the right timing to reasonably standardize and institutionalize the local government bond market with transparent market mechanism.

This paper studies the presence of informed trading in Taiwan stock index options (TXO) and analyzes the informational role of foreign institutions in incorporating information into Taiwan stock index futures (TX). We have found that only the option-induced part (OOI) of the total TX order imbalance can predict future TX prices, and the OOI calculated from open-buy TXO, defined by Ni et al. (2008), provides incremental predictability. This finding shows that the price predictability stems from the information flow resulting from option transactions rather than from liquidity pressure. We conclude further that option transactions from foreign institutions provide the most significant predictability, out-of-the-money option transactions in particular. These empirical results show that option transactions conducted by foreign institutions have played the primary role in conveying the information inherent in the TXO market to the TX market, foreign institutions being delta-informed traders. Retail investors, the major players in both the TXO and TX markets, have done almost nothing of significance with regard to TXO information transmission into the TX market, with the exception of some near-the-money and out-of-the-money options.

We examine a unique one day lockup constraint in stock markets in China and contribute to the understanding of impact of non-marketability on asset prices. Buyers of Chinese stocks are subject to a one day lockup and cannot sell their shares until the next day, but warrant traders are free of such restrictions. We demonstrate that the lockup creates a price discount relative to stock value implied by warrants. We show that the discount decreases throughout the trading day and that investors tend to purchase stocks when the lockup becomes less binding. The paper provides implications to value illiquid assets.

After the Chinese stock market dropped one-third in three weeks in June 2015, reportedly driven by lack of liquidity due to the fire sales by margin buyers, the government used hundreds of billions of dollars to purchase shares directly in the secondary market. We validate that margin trading is associated with the surge of stock market before the crisis. We find that firms in systemically important industries, firms with more political ties, and firms with high risk of falling into liquidity spiral are more likely to be rescued. More importantly, compared with matched un-rescued firms, rescued firms did not have higher stock return, but experienced higher volatility, lower liquidity, and lower price efficiency afterwards. Market quality even deteriorated further after the subsequent sale of the purchased shares. Last, rescued firms experience a modest decline in operational performance, while capital structure and investment remained the same. Our evidence suggest that a direct purchase rescue in the secondary stock market could generate serious unintended consequences.

Investors have limited attention, especially when getting busy. They also possess a capability of fast thinking that requires little, if any, attention, although fast thinking leads to biased judgement and inferior outcome. From a Chinese online peer-to-peer lending market, we document a substantial amount of instant loan bids (i.e., those confirmed within only a few seconds) which help identify fast thinking. We find that lending decisions made within busy working hours with more attention constraint have significantly higher likelihood of being instant and significantly lower investment performance, suggesting that investors are prone to fast thinking when their attention becomes limited.

现有文献主要聚焦于风投机构本身的静态同质化价值增值职能，围 绕风投机构的增值职能与风险投资退出表现展开了大量研究。本文提出风险投资 与创业企业之间的匹配结构对风险投资退出表现的影响机制问题。基于 Fu et al.(2018b)的研究模型，我们通过进一步的理论分析发现:创投双方匹配结构会 影响双方各自最优努力水平，造成风投机构价值增值职能的动态异质性，表现出 影响风投机构的退出表现;同时，采用实证模型研究发现:创投双方的匹配契合 度越高越有助于改善风投机构退出表现，创投双方的匹配差异度对风险投资提出 表现呈现倒 U 型关系特征，支撑了理论模型的研究结论。本文为探索风险投资 退出表现与创业企业发展成长的决定机制提供了一个崭新的研究视角，充实和扩 展风险投资对企业成长发挥增值职能的研究基础。