This paper analyzes the influence of downside risk on defaultable bond returns. By introducing a defaultable bond …-trading model, we show that the decline in market risk tolerance and information accuracy leads to trading loss under downside … conditions. Our empirical analysis indicates that downside risk can explain a large proportion of the variation in yield spreads …

An important research question examined in the credit risk literature focuses on the proportion of corporate yield … spreads attributed to default risk. This topic is reexamined in the light of the different issues associated with the … estimated default risk proportion in corporate yield spreads is highly sensitive to the ex-ante estimated term structure of …

that the precautionary savings motive in response to estimation uncertainty can dominate the risk aversion effect … holding horizons, however, estimation uncertainty does induce higher risk premiums on equity over risk-free coupon bonds of …

macroeconomic sources of risk. From the estimated term premia we recover the term structure of interest rates and examine how it …

A large literature suggests that the expected equity risk premium is countercyclical. Using a variety of different … measures for this risk premium, we document that it also exhibits growth asymmetry, i.e. the risk premium rises sharply in … which agents cannot perfectly observe the state of current productivity, can generate the observed asymmetry in the risk …