A large part of the current debate on US stock price behaviorconcentrates on the question of whether stock prices are driven byfundamentals or by non-fundamental factors(...)

Starting from the Merton framework for firm defaults, we provide theanalytics and robustness of the relationship between defaultprobabilities and default correlations. We show that loans with higherdefault probabilities will not only have higher variances but also highercorrelations with other...