In this paper, we show that in a model where investors have heterogeneous preferences, the expected return of risky assets depends on the idiosyncratic coskewness beta, which measures the co-movement of the individual stock variance and the market return. We find that there is a negative...

Return anomalies are most pronounced among distressed stocks. We attribute this finding to the role of misvaluation and investors' inability to value distressed stocks correctly. We treat distressed stocks as options and construct a valuation model that explicitly takes into account the value of...

I propose a neoclassical production economy with costly external financing, partial investment irreversibility, and endogenous investment/financing decisions to rationalize and quantify the well-documented interaction between the book-to-market equity effect and the financial leverage effect in...

Inspired by Aumann and Serrano (2008) and Foster and Hart (2009), we propose risk-neutral options' implied measures of riskiness and investigate their significance in predicting the cross section of expected returns per unit of risk. The empirical analyses indicate a negative and significant...

We study the exposure of the U.S. corporate bond returns to liquidity shocks of stocks and treasury bonds over the period 1973-2007 in a regime switching model. In one regime, liquidity shocks have mostly insignificant effect on bond prices, whereas in another regime, a rise in illiquidity...

On September 17, 2009, Boston Private Financial Holdings (BPFH) sold its Coral Gables, Florida based Gibraltar Private Bank & Trust subsidiary for $93 million. On October 27, 2009, Scott Rothstein fled to Morocco on a private jet before turning himself in to authorities. Mr. Rothstein has...

Return anomalies are most pronounced among distressed stocks. We attribute this finding to the role of misvaluation and investors' inability to value distressed stocks correctly. We treat distressed stocks as options and construct a valuation model that explicitly takes into account the value of...

The value premium is the empirical observation that low market/book “value” stocks have higher returns than high market/book “growth” stocks. In this paper, we report evidence that there is a value premium for firms in financial distress despite the anomalous observation that firms in...

Standard credit risk models cannot explain the observed clustering of default, sometimes described as "credit contagion." This paper provides the first empirical analysis of credit contagion via direct counterparty effects. We examine the wealth effects of bankruptcy announcements on creditors...

We argue that default option is important for equity valuation and construct a model that explicitly prices the option to default or abandon the firm. An investment strategy that buys stocks that are classified as undervalued by our model and shorts overvalued stocks generates an annual 4-factor...