This study uses 469,816 monthly observations of US public firms for the period 1990-2018 to document a strong positive relationship between short-term changes in financial distress risk and future stock price crashes. This result is economically significant as a one interquartile increase of the...

The purpose of the article is to analyse the impact of various financial ratios used to evaluate a company’s liquidity and solvency on the rates of return on the shares of companies listed on the Warsaw Stock Exchange. In the context of developing countries, the relationship between liquidity...

While empirical literature has documented a negative relation between default risk and stock returns, theory suggests that default risk should be positively priced. In this paper, we calculate monthly probabilities of default (PDs) for a large sample of European firms and break them down into...

Our study examines whether financial distress risk is systematic risk using twelve portfolios sorted by size, book-to-market, and leverage and a portfolio of distressed firms covering an 18-year period. It also tests the explanatory power of the risk factors that best capture default risk. The...

Does the ability to protect an asset from unsecured creditors affect its price? This paper identifies the impact of bankruptcy protection on house prices using 139 changes in homestead exemptions. Large increases in the homestead exemption raised house prices 3% before 2005. Smaller exemption...

We build a dynamic model to link two empirical patterns:\ the negative failure probability-return relation (Campbell, Hilscher, and Szilagyi, 2008) and the positive distress risk premium-return relation (Friewald, Wagner, and Zechner, 2014). We show analytically and quantitatively that (i)...

This paper quantifies the premium demanded by the investors for bearing the corporate default risk. We propose a novel approach that exploits the information in both credit default swap (CDS) spreads and stock prices, using the pricing restrictions provided by a structural model of credit risk....

This article presents a comprehensive framework for valuing financial instruments subject to credit risk and collateralization. In particular, we focus on the impact of default dependence on asset pricing, as correlated default risk is one of the most pervasive threats to financial markets. Some...