the risk of default of public debt, as well as the negative consequences of non-repayment of sovereign debt. The …

firms and concludes that both the size and book-to-market effects are related to default risk. For example, small firms earn … higher return than big firms only if they have higher default risk and value stocks earn higher returns than growth stocks if … their default risk is high. In this paper we use a more advanced compound option pricing model for the computation of …

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 …