Flight to quality and implicit guarantee: Evidence from Chinese trust products

摘要

We investigate the existence of alleged implicit guarantee in the primary market of Chinese trust products by testing whether flight-to-quality occurs towards trust products during financial turbulence. Since flight-to-quality occurs only towards safe assets, investors' weak preference for trust products during turmoil implies the absence of guarantee. By jointly analyzing trust product issues and yield spreads, we test whether trust products are preferred particularly during financial turbulence. We find that market turmoil measured by larger credit spread overall induces more issues of trust products with greater yield spreads. Among more creditworthy products, however, we find more issues with smaller spreads when credit spread increases, indicating strong preference for these products. Such high preference during turmoil is observed only in the earlier sample period. The findings suggest that unlike media allegation, implicit guarantee only narrowly exists for selected trust products and is steadily weakening.