The finance literature looks at a number of factors to explain risk premia in corporate debt, such as liquidity effects …, jump-to-default risk, and contagion risk. Stochastic re-covery rates as a source of systematic risk have not received much … that differently-ranking debt instruments of the same issuer face identical default risk but different default …

, Hilscher, and Szilagyi, 2008) and the positive distress risk premium-return relation (Friewald, Wagner, and Zechner, 2014). We … market risk premium in distressed firms; (ii) negative covariance generates low stock returns and negative alphas among those … firms; and (iii) firms with a lower distress risk premium endogenously choose higher leverage, so they are more likely to …

While empirical literature has documented a negative relation between default risk and stock returns, theory suggests …. In accordance with theory, we find that the systematic part, measured as the PD sensitivity to aggregate default risk, is … that default risk should be positively priced. In this paper, we calculate monthly probabilities of default (PDs) for a …

exposure to macroeconomic risk, and that FD can increase macroeconomic vulnerability. To do this, we first establish three …

While empirical literature has documented a negative relation between default risk and stock returns, the theory … suggests that default risk should be positively priced. We provide an explanation for this "default anomaly", by calculating … components. The systematic part, measured as the PD sensitivity to aggregate default risk, is positively related to stock returns …

liquidity risk. After adjusting for liquidity risk, low beta stocks no longer outperform high beta stocks. Although investors … fails to generate any significant returns when liquidity risk is accounted for. Our work helps understand the beta premium … from a new liquidity-risk perspective, and draws useful implications for both fund and corporate managers …

average future returns. We show that there is a large overlap between stocks classified as high default risk, and those that … are highly correlated, with over 50% of firms in the top distress risk quintile also in the top quintile of predicted … that the low returns to high distress risk firms are large and significant in ‘speculative' firms (with high sales growth …

We merge the literature on downside return risk and liquidity risk and introduce the concept of extreme downside … same time when the market liquidity (return) is lowest. This effect is not driven by linear or downside liquidity risk or … extreme downside return risk and is mainly driven by more recent years. There is no premium for stocks whose liquidity is …

aggregate distress risk and earn a CAPM alpha of approximately -4% a year. Both HML and SMB predict changes in future failure …This paper shows that exposure to aggregate distress risk is the underlying source of the premiums for the Fama …