Hidden in the Factors? The Effect of Credit Risk on the Cross-section of Equity Returns?

Publikation: Working paperForskning

Abstrakt

This paper disentangles the complexity of the distress risk premium in stock returns using the risk-neutral measure of credit risk (valued by CDS spread) and investigates the relationship between credit risk and the market , size, value, and momentum effects. Consistent with the argument for a negative distress premium, firms with higher credit risk have lower stock returns, and a positive value effect is concentrated in high credit quality firms. However, credit risk is positively priced in returns on stocks that won the most in the past year and that, during crisis, co-moved the most with the market. A positive momentum effect is concentrated in high credit risk firms. Furthermore, the size effect, but not the value effect, could be attributed to a positive credit risk effect.
OriginalsprogEngelsk
UdgivelsesstedLund
UdgiverLunds Universitet
Antal sider24
StatusUdgivet - 2015
Udgivet eksterntJa
NavnWorking paper. Department of Economics, Lund University
Nummer2011:38

Emneord

  • Asset pricing
  • Equity returns
  • Size effect
  • Value effect
  • Credit risk effect
  • Credit default swap

Citationsformater