Abstract

This study investigates the impact of share pledging on asset pricing in the Thai stock market. Using data from listed companies during 2020–2024, the analysis classifies firms by their “pledge intensity,” defined as the proportion of outstanding shares pledged as collateral. The results show that firms with high pledge intensity outperform the market during periods of ample market liquidity, but significantly underperform when liquidity tightens.

An analysis using the Fama-French six-factor model reveals that:

• Firms in the top 5% of pledge intensity exhibit the highest levels of risk and show clear patterns of abnormal returns (alpha), both positive and negative, depending on market conditions.
• During the funding expansion period (2020–2021), firms with high pledge intensity earned significantly higher average returns than other groups and demonstrated strong positive alpha.
• During the funding tightening period (2022–2024), these firms with high pledge intensity underperformed the market and showed significantly negative alpha, particularly among those in the highest pledge intensity group (P95–P100).
• High-pledge firms also display higher beta coefficients, indicating greater volatility and heightened exposure to systematic risk.

The findings support the theory of collateral constraints, which posits that a decline in collateral value can lead to forced asset sales, further depressing stock prices through a liquidity spiral. The results are also consistent with margin-based asset pricing theory, which emphasizes the role of margin constraints in determining expected returns, particularly under fragile market conditions.

Overall, the study highlights the systemic risk posed by share pledging in emerging markets, such as Thailand, and underscores the importance of regulatory oversight on collateral-linked transactions, particularly during periods of market stress.