We investigate the informational content of credit default swap (CDS) spreads for future volatility of (firm) assets and equity. In the cross-section, CDS spreads are significantly more informative about future asset than equity volatility. The informational content of historical and option...

Whether the credit risk should be priced has been widely debated. We study this issue in the Chinese context, where the financial market has been long dominated by indirect financing. We employ the Merton's (1974) model to measure the credit risk of firms listed on Chinese A-share market...

We introduce a new approach to measuring riskiness in the equity market. We propose option implied and physical measures of riskiness and investigate their performance in predicting future market returns. The predictive regressions indicate a positive and significant relation between...

We propose options' implied and physical measures of riskiness and investigate their performance in predicting future returns on the U.S. equity market. The predictive regressions indicate a positive and significant relation between time-varying riskiness and expected market returns. The...

We document the negative effect of stock liquidity on default risk for a sample of 46 countries. We further find that default risk declines following the introduction of the Directive on Markets in Financial Instruments (MiFID)—an exogenous shock that increases liquidity. The effect of...

To promote the financial stability, there is a need for an early warning system to signal the formation of asset price misalignments. This research provides two novel methods to accomplish this task. Results in this research shows that the conventional unit root tests in modified forms can be...

This paper examines the time-varying conditional correlations of daily European equity market returns during the Irish sovereign debt crisis. A dynamic conditional correlation (DCC) multivariate GARCH model is used to estimate to what extent the collapse of Irish equity markets and subsequent...