This paper introduces a new measure of a firm's exposure to systematic distress risk--the probability of a recession at the time of a firm's failure. For stocks in the top quintile of the probability of failure, a median hedge portfolio based on our measure generates a positive risk premium of...

This paper studies the ability of long-run risk models to explain out-of-sample asset returns during 1931–2009. The long-run risk models perform relatively well on the momentum effect.