A unified explanation of risk and mispricing in stock returns underpinned by their aggregate liquidity risk is … liquidity risk or betting on it. A three-factor model capturing these return variations is developed. Results show that our … liquidity risk hedging. The imposition of stringent temporal restrictions on competing factor models shows that our model leads …

, Hilscher, and Szilagyi, 2008) and the positive distress risk premium-return relation (Friewald, Wagner, and Zechner, 2014). We … market risk premium in distressed firms; (ii) negative covariance generates low stock returns and negative alphas among those … firms; and (iii) firms with a lower distress risk premium endogenously choose higher leverage, so they are more likely to …

distress-risk but increases growth-leverage and, thus, we test for a U-shaped relation between returns and profitability from …

This research presents evidence for the existence of differences in asset beta risk in the liquidity cross-section of … assets due to correlated trading. It is argued that due to differences in liquidity or cost, most trading activity is … concentrated on the subset of liquid assets. In the presence of systematic wealth shocks this leads to an increase in beta risk for …

We merge the literature on downside return risk and liquidity risk and introduce the concept of extreme downside … same time when the market liquidity (return) is lowest. This effect is not driven by linear or downside liquidity risk or … extreme downside return risk and is mainly driven by more recent years. There is no premium for stocks whose liquidity is …

risk factors. Risk factor correlation increases when investor sentiment worsens. This suggests that corporate bond … investors change their perception of risk factors, which results in higher risk factor correlation and finally higher bond …

While empirical literature has documented a negative relation between default risk and stock returns, the theory … suggests that default risk should be positively priced. We provide an explanation for this "default anomaly", by calculating … components. The systematic part, measured as the PD sensitivity to aggregate default risk, is positively related to stock returns …

arises in economic downturns because of the risk-enhancing investment/financing behavior of firms with a net worth below the …-to-market equity can identify those with large exposure to aggregate risk, and therefore dominates book leverage as a proxy for equity … risk. The numerical analysis of the book-to-market equity effect and financial leverage effect (market or book) on the …

average future returns. We show that there is a large overlap between stocks classified as high default risk, and those that … are highly correlated, with over 50% of firms in the top distress risk quintile also in the top quintile of predicted … that the low returns to high distress risk firms are large and significant in ‘speculative' firms (with high sales growth …

We use an asset pricing approach to compare the effects of expected liquidity and liquidity risk on expected U …'s measure. The results show that expected bond liquidity and exposure to equity market liquidity risk affect expected bond … evidence that exposure to corporate bond liquidity shocks carries an economically negligible risk premium. We develop a simple …