Firm-level stock volatility has increased significantly since 1962 and varies widely across industries. Recent literature shows that the excessive and persistent stock volatility can be well explained by fundamental uncertainties. This paper conducted panel data analyses on 415 firms during...

In this paper, we intend to explain an empirical finding that distressed stocks delivered anomalously low returns. We show that in a model with heterogeneous investors where idiosyncratic skewness is priced, the expected return of risky assets depends on idiosyncratic coskewness betas, which...

This paper investigates the market and accounting based valuation effects of troubled debt restructurings (TDR) in financially distressed debtor firms. I first rely on extant valuation theories to predict the impact of a TDR on shareholders' wealth. Next, some empirical evidence on the...

We describe a class of quantitative credit risk models that take account of the unavoidable gaps in investors' information. These incomplete information models are structural/reduced form hybrids. They combine the best features of both traditional approaches while avoiding many of their shortcomings

Analysis of the actual holdings of bond mutual funds and transaction data of insurance companies during the period between 2003 and 2007 confirms a clientele change when a corporate bond is initially downgraded to iquest;junkiquest; status. Investment-grade bond funds and insurance companies are...

We consider the infinite-horizon optimal portfolio liquidation problem for a von Neumann-Morgenstern investor in the liquidity model of Almgren (2003). Using a stochastic control approach, we characterize the value function and the optimal strategy as classical solutions of nonlinear parabolic...

We consider a multi-player situation in an illiquid market in which one player tries to liquidate a large portfolio in a short time span, while some competitors know of the seller's intention and try to make a profit by trading in this market over a longer time horizon. We show that the...

We test the widely held assumption that longer restructurings are more costly. In contrast to earlier studies, we use instrumental variables to control for the endogeneity of restructuring time and creditor return. Instrumenting proves critical to our finding that creditor recovery rates...

The standard measures of distress risk ignore the fact that firm defaults are correlated and that some defaults are more likely to occur in bad times. We use risk premium computed from corporate credit spreads to measure a firm's exposure to systematic variation in default risk. Unlike...

We consider the infinite time-horizon optimal basket portfolio liquidation problem for a von Neumann-Morgenstern investor in a multi-asset extension of the liquidity model of Almgren (2003) with cross-asset impact. Using a stochastic control approach, we establish a quot;separation theoremquot;:...