Prior to the subprime crisis, mortgage brokers charged higher percentage fees for loans that turned out to be riskier ex post, even when conditioning on other risk characteristics. High conditional fees reveal borrower attributes that are associated with high borrower risk, such as suboptimal...

We identify a common default risk premia (DRP) factor in the risk-adjusted excess returns on pure default-contingent claims. Asset pricing tests using almost 50 corporate bond portfolios sorted on rating, maturity or industry suggest that the DRP factor is priced in the corporate bond market....

Common variation in the prices of defaultable securities may not always be associated with a rational response to an increase in the relative importance of a macroeconomic risk factor. Building on Campbell's ICAPM framework, we show that risk premia of assets with nonlognormal return...

I document an abnormal increase in the price of default insurance for target firms at the time of an activist hedge fund intervention, despite an abnormal decrease in expected default losses. After the intervention, credit spreads remain abnormally high for confrontational activist campaigns but...

We propose an equilibrium model of over-the-counter corporate bond trading with short selling, asymmetric information and dealer inventory costs. The model predicts that higher inventory costs impose implicit short-sale constraints on informed investors and are thus associated with lower price...

Prior to the subprime crisis, mortgage brokers charged higher fees for subprime loans that turned out to be riskier ex post, even when conditioning on other risk characteristics. Borrowers who paid higher conditional fees were inherently more risky, not just because they paid higher fees. The...

We develop an equilibrium model for origination fees charged by mortgage brokers and show how the equilibrium fee distribution depends on borrowers' valuation for their loans and their information about fees. We use non-crossing quantile regressions and data from a large subprime lender to...

We measure credit risk premia - prices for bearing corporate default risk in excess of expected default losses - using Markit CDS and Moody's Analytics EDF data. We find dramatic variation over time in credit risk premia, with peaks in 2002, during the global financial crisis of 2008-09, and in...

Bank credit has evolved from the traditional relationship banking model to an originate-to-distribute model. We show that the borrowers whose loans are sold in the secondary market underperform their peers by about 9% per year (risk-adjusted) over the three-year period following the initial sale...

This paper estimates recent default risk premia for U.S. corporate debt, based on a close relationship between default probabilities, as estimated by Moody's KMV EDFs, and default swap (CDS) market rates. The default-swap data, obtained through CIBC from 22 banks and specialty dealers, allow us...