Arbeitspapier
Pricing Default Risk: The good, the bad, and the anomaly
While empirical literature has documented a negative relation between default risk and stock returns, the theory suggests that default risk should be positively priced. We provide an explanation for this "default anomaly", by calculating monthly probabilities of default (PDs) for a large sample of firms and decomposing them into systematic and idiosyncratic components. The systematic part, measured as the PD sensitivity to aggregate default risk, is positively related to stock returns. Our results show that riskier stocks underperform because they have on average lower exposures to aggregate default risk.
- Language
-
Englisch
- Bibliographic citation
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Series: EIF Working Paper ; No. 2014/23
- Classification
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Wirtschaft
Portfolio Choice; Investment Decisions
Asset Pricing; Trading Volume; Bond Interest Rates
International Financial Markets
Bankruptcy; Liquidation
- Subject
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Default Risk
Merton model
Default Anomaly
Idiosyncratic Risk
- Event
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Geistige Schöpfung
- (who)
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Ferreira Filipe, Sara
Grammatikos, Theoharry
Michala, Dimitra
- Event
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Veröffentlichung
- (who)
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European Investment Fund (EIF)
- (where)
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Luxembourg
- (when)
-
2014
- Handle
- Last update
-
10.03.2025, 11:43 AM CET
Data provider
This object is provided by:
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Arbeitspapier
Associated
- Ferreira Filipe, Sara
- Grammatikos, Theoharry
- Michala, Dimitra
- European Investment Fund (EIF)
Time of origin
- 2014
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