asset prices reflect both covariance risk and misperceptions of firmsapos prospects, and in which arbitrageurs trade against … mispricing. In equilibrium, expected returns are linearly related to both risk and mispricing measures (e.g., fundamental …

recessions in the Eurozone from the 1990s to the recent past. Credit default swap (CDS) data on sovereign bonds, which provide a … direct measure of default risk, are employed as part of a new risk-adjustment method that significantly enhances the … using the commonly employed yield spread remains high, provided that biases associated with Eurozone sovereign default risk …

swap (CDS) spreads on sovereign bonds, which provide a direct measure of credit risk. Incorporating those spreads …-term interest rates of many Eurozone countries. Therefore, a new method of risk adjustment is introduced. We employ credit default … biases associated with Eurozone sovereign default risk are considered. …