Is systematic default risk priced in equity returns?

a cross-sectional analysis using credit derivatives prices

by Jorge A. Chan-Lau

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Published 2006 by International Monetary Fund, Monetary and Financial Systems Dept. in Washington, D.C .
Written in English

Subjects:

• Default (Finance) -- Econometric models.,
• Risk -- Econometric models.,
• Credit derivatives -- Prices -- Econometric models.,
• Corporations -- Valuation -- Econometric models.

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About the Edition

This paper finds that systematic default risk, or the event of widespread defaults in the corporate sector, is an important determinant of equity returns. Moreover, the market price of systematic default risk is one order of magnitude higher than the market price of other risk factors. In contrast to studies by Fama and French (1993, 1996 ) and Vassalou and Xing (2004), this paper uses a market-based measure of systematic default risk. The measure is constructed using price information from credit derivatives prices, namely the spreads of standardized single-tranche collateralized debt obligations on credit derivatives indices.

Edition Notes

Statement	prepared by Jorge A. Chan-Lau.
Series	IMF working paper -- WP/06/148
Contributions	International Monetary Fund. Monetary and Financial Systems Dept.
The Physical Object
Pagination	16 p. :
Number of Pages	16
ID Numbers
Open Library	OL19269795M

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