Why some Distressed Firms Have Low Expected Returns"

Takao Kobayashi () and Ryoichi Ikeda
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Ryoichi Ikeda: Graduate School of Economics, University of Tokyo

No CIRJE-F-504, CIRJE F-Series from CIRJE, Faculty of Economics, University of Tokyo

Abstract: In recent years, empirical researchers show that the higher credit risk, the lower the cross-sectional average stock returns. Although it seems that this result is puzzling in a standard financial pricing theory, we show that, in a production based model with a zero-coupon bond, negative correlation between credit risk and expected stock return can be plausible.

Pages: 21 pages
Date: 2007-07
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Persistent link: https://EconPapers.repec.org/RePEc:tky:fseres:2007cf504

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