Garlappi, Lorenzo; Shu, Tao; Yan, Hong - In: Review of Financial Studies 21 (2008) 6, pp. 2743-2778
This paper examines the relationship between default probability and stock returns. Using the Expected Default Frequency (EDF) of Moody's KMV, we document that higher default probabilities are not associated with higher expected stock returns. Within a model of bargaining between equity holders...