We examine the information content of the CBOE Crude Oil Volatility Index (OVX) when forecasting realized volatility in the WTI futures market. Additionally, we study whether other market variables, such as volume, open interest, daily returns, bid-ask spread and the slope of the futures curve,...

Tracing the SEC ban on the short selling of financial stocks in September 2008, this paper investigates whether such selling activity before the 2008 short ban reflected financial companies’ risk exposure in the subprime crisis. Evidence suggests that short sellers sold short stocks that had...

We employ a comprehensive data set and a variety of methods to provide evidence on the magnitude of large banks’ funding advantage in Canada in addition to the extent to which market discipline exists across different securities issued by the Canadian banks. The banking sector in Canada...

Rehypothecation is the practice where a derivatives dealer reuses collateral posted from its end user in over-the-counter (OTC) derivatives markets. Although rehypothecation benefits the end user through cost reduction of derivative trades, it also creates additional counterparty credit risk...

We conduct a thorough analysis on the role played by the unobserved systematic risk factor in default prediction. We find that this latent factor outweighs the observed systematic risk factors and can substantially improve the in-sample predictive accuracy at the firm, rating group, and...

Distance-to-default (DD) is a measure of default risk derived from observed stock prices and book leverage using the structural credit risk model of Merton (1974). Despite the simplifying assumptions that underlie its derivation, DD has proven empirically to be a strong predictor of default. We...

We investigate the relative importance of various bankruptcy predictors commonly used in the existing literature by applying a variable selection technique, the least absolute shrinkage and selection operator (LASSO), to a comprehensive bankruptcy database. Over the 1980–2009 period, LASSO...

We consider how equity holders’ bargaining power during financial distress influences the interactions between financing and investment decisions when the firm faces the upper limit of debt issuance. We obtain four results. First, weaker equity holders’ bargaining power is more likely that...

In recent years hazard models, using both market and accounting information, have become state of the art in predicting firm bankruptcies. However, a comprehensive test comparing their performance against the traditional accounting-based approach or the contingent claims approach is missing in...

This paper studies intercreditor conflict arising from political interference in the bankruptcy process. The U.S. government’s intervention in the 2009 reorganizations of Chrysler and GM purportedly elevated claims of the auto union over those of the automakers’ senior creditors in violation...