The demand effect of yield-chasing retail investors: Evidence from the Chinese enterprise bond market

Clark Liu, Shujing Wang, K. C.John Wei, Ninghua Zhong

Research output: Journal article publicationJournal articleAcademic researchpeer-review

3 Citations (Scopus)


Enterprise bonds with higher demand of retail investors are traded at significantly higher prices in the exchange market than the same bonds traded by institutional investors in the interbank market in China. The price difference is higher for bonds with higher yield to maturity, lower supply, and higher demand exposure to retail investors. Our results suggest that risky bonds can be priced significantly higher due to the demand of yield-chasing investors and a sudden negative demand shock can generate a sharp decrease in bond values. The demand and supply effects are stronger for bonds with higher duration due to the limited risk-sharing capacity of risk-averse arbitrageurs.

Original languageEnglish
Pages (from-to)57-77
Number of pages21
JournalJournal of Empirical Finance
Publication statusPublished - Jan 2019


  • Demand and supply effects
  • Enterprise bonds
  • Limits to arbitrage
  • The law of one price
  • Yield-chasing

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

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