Using an extensive Australian sample, we explore two related issues in the context of a default risk asset-pricing factor (DEF) over the business cycle: (a) whether a DEF can explain the size premium in the three-factor Fama–French (FF) model; and (b) whether a DEF has a separate role...

Persistent bear market conditions have led to a shift of focus in the tracking error literature. Until recently the portfolio allocation literature focused on tracking error minimization as a consequence of passive benchmark management under portfolio weights, transaction costs and short selling...