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In this paper, we intend to explain an empirical finding that distressed stocks delivered anomalously low returns (Campbell et. al. (2008)). We show that in a model where investors have heterogeneous preferences, the expected return of risky assets depends on idiosyncratic coskewness betas,...
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We present an integrated framework incorporating both exogenous liquidity risk in the secondary corporate bond market … and volatility risk in the dynamics of asset value in debt rollover models. Using an innovative theoretical approach we … values from empirical studies that volatility risk, together with deteriorating bond market liquidity, decrease both debt and …
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