We examine the impact of the unobservable systematic risk factor on default prediction model performance. We find that … including the unobservable systematic risk factor might help improve predictive accuracy, but it might not help improve rank … ordering of firms by default risk. Rank ordering is mainly driven by firm-level variables, while predictive accuracy is …

This paper analyzes the influence of downside risk on defaultable bond returns. By introducing a defaultable bond …-trading model, we show that the decline in market risk tolerance and information accuracy leads to trading loss under downside … conditions. Our empirical analysis indicates that downside risk can explain a large proportion of the variation in yield spreads …

firms and concludes that both the size and book-to-market effects are related to default risk. For example, small firms earn … higher return than big firms only if they have higher default risk and value stocks earn higher returns than growth stocks if … their default risk is high. In this paper we use a more advanced compound option pricing model for the computation of …

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 … components. The systematic part, measured as the PD sensitivity to aggregate default risk, is positively related to stock returns …

Purpose: Previous research on the relationship between a firm’s distress risk and future stock returns produces … risk leads to positive rewards, while unsystematic distress risk leads to low stock returns. In addition, this study … intends to elucidate the factors of systematic distress risk and unsystematic distress risk, respectively. In this way, this …

, whilst removing credit risk transmission, systematically increase default risk …

strategic shareholder actions, traditional risk factors, characteristics, or mispricing, but, instead, is consistent with a risk …-shifting hypothesis. Consistent with the risk-shifting hypothesis, we find that distressed firms tend to overinvest, destroy value, and … cases where CEOs receive above-average equity-based compensation. As default risk rises, credit spreads rise, equity betas …

We study the endogenous determination of corporate debt maturity in a setting with default risk. We assume that firms … risk. The technology is such that earnings can switch to a higher (but riskier) level. In this second phase firms have … access to the equity market but they may default if this is the best option. We call this strategic default risk. In the …

the risk of default of public debt, as well as the negative consequences of non-repayment of sovereign debt. The …