Many asset pricing theories treat the cross-section of returns volatility and correlations as two intimately related quantities driven by common factors, which hinders achieving a neat definition of a correlation premium. We formulate a model without factors, but with a continuum of securities...

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...