Is there a Distress Risk Anomaly? Pricing of Systematic Default Risk in the Cross Section of Equity Returns

Released on by Deniz Anginer
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  • Is there a Distress Risk Anomaly? Pricing of Systematic Default Risk in the Cross Section of Equity Returns Book Detail

  • Author : Deniz Anginer
  • Release Date : 2019
  • Publisher :
  • Genre :
  • Pages : 52
  • ISBN 13 :
  • File Size : 5,5 MB
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Is there a Distress Risk Anomaly? Pricing of Systematic Default Risk in the Cross Section of Equity Returns by Deniz Anginer PDF Summary

Book Description: The standard measures of distress risk ignore the fact that firm defaults are correlated and that some defaults are more likely to occur in bad times. We use risk premium computed from corporate credit spreads to measure a firm's exposure to systematic variation in default risk. Unlike previously used measures, the credit risk premium explicitly accounts for the non-diversifiable component of distress risk. In contrast to prior findings in the literature, we find that stocks with higher systematic default risk exposures, have higher expected equity returns which are largely explained by the Fama-French risk factors. We confirm the robustness of these results by using an alternative systematic default risk factor for firms that do not have bonds outstanding.

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Pricing Default Risk

Pricing Default Risk

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While empirical literature has documented a negative relation between default risk and stock returns, theory suggests that default risk should be positively pri