aggregate risk premia. Building on the idea that corporate debt, while safe in normal times, is exposed to the risk of economic … depression, this paper embeds a trade-off theory of capital structure into a real business cycle model with a small, time …-varying risk of large economic disaster. This simple feature generates large, volatile and countercyclical credit spreads as well …

account for the risk premia and asset price fluctuations. In addition, the model can empirically account for the cross …

In competitive capital markets, risky debt claims that offer high yields in good times have high systematic risk … exposure in bad times. We apply this idea to bank risk measurement. We find that banks with high accounting return on equity … (ROE) prior to a crisis have higher systematic tail risk exposure during the crisis. Proximate causes of crises differ, but …

The foreign exchange risk premium in an exchange rate target zone regime with devaluation/realignment risks is derived … devaluation/realignment risk, is taken into account. The risk premium is then the sum of two separate risk premia, arising from … real and nominal exchange rate premia are considered. The real and nominal risk premia from movements within the band are …

MBS earn risk premia as compensation for their exposure to prepayment risk. We measure prepayment risk and estimate … security risk loadings using real data on prepayment forecasts vs. realizations. Estimated loadings are monotonic in securities … investors. In particular, we find convincing evidence that prepayment risk prices change sign over time with the sign of a …

portfolios sorted by maturity and credit risk as measured by the issuer's "distance-to-default." The portfolios are constructed …

value premium is larger in "bad times," due to time variation in risk preferences; (c) the unconditional CAPM fails, because … with empirical evidence, the model shows that (a) value stocks are those with higher cash-flow risk; (b) the size of the … conditional CAPM and a Fama and French (1993) HML factor outperform the unconditional CAPM …

This paper represents an extension and integration of recent empirical and theoretical research on default risk and …

, economic uncertainty, and risk premia influence firms' financing and default policies. Countercyclical fluctuations in risk …. These comovements generate large credit risk premia for investment grade firms, which helps address the "credit spread …