Campbell, Hilscher, and Szilagyi (2008) show that firms with a high probability of default have significantly low average future returns. We show that there is a large overlap between stocks classified as high default risk, and those that are likely to produce extremely high returns over the...

The correlation between stock characteristics and the cross-section of stock returns plays a central role in empirical implementations of modern asset pricing models and has important implications for investment management. This remains true whether the correlation is due to investor preferences...