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 …

This paper studies the asset pricing implications of idiosyncratic labor income tail risk on credit spread. I propose a … model featuring an incomplete market, heterogeneous households with recursive preference, and comovement of tail risk in … to labor tail risk. Quantitatively, the tail risk premium can account for as much as 68% of the observed credit spread …