Speaker: Dr. Haoyu GAO, Associate Professor, Renmin University of China
Time: 14:00-15:30 , Apr. 30, 2021
Platform: Tencent Meeting 738 982 458
Organizers: Institute of Financial Studies, Research Office
Dr. Gao is an Associate Professor at Renmin University of China. His research interests mainly focus on corporate finance, debt default and rating, and China's capital market. His research papers have been published in Review of Financial Studies (RFS), Journal of Financial Economics (JFE), and Journal of Financial and Quantitative Analysis (JFQA).
Shell-Shocked Investors: Earthquake Effect on Yield Spreads of Quasi-Municipal Bonds
Friday 4/30 (90 min)
Using a comprehensive data set of earthquakes in China, this paper shows that investors increase the perceived risk of quasi-municipal bonds exposed to destructive earthquakes and require a significantly positive risk premium. Our results find that the effect is temporary and decreases with investors' prior knowledge of earthquake hazards, which supports the salience theory. This irrational pricing bias is larger when bonds have longer maturity, lower credit rating, and weaker government implicit guarantees. We exclude alternative explanations based on the financial underperformance of governments and firms in affected zones. Our findings reveal a novel bond pricing factor associated with sudden natural disasters.