 Credit risk – Return puzzle: Evidence from IndiaElizabeth Nedumparambil and Anup Kumar Bhandari Economic Modelling, 2020, vol. 92, issue C, 195-206 Abstract: Although asset pricing theories predict a positive relation between risk and returns, empirical findings on credit risk-return relationship are mixed. And, observed negative relation between the two in this regard is referred to as credit risk-return puzzle. Using credit rating as a measure of credit risk, we have investigated into the existence of this puzzle in India during July 2011 to March 2019. We have used information for the companies listed on the National Stock Exchange for this purpose. Our results validate the presence of this puzzle in the Indian stock market. Moreover, credit risk is observed to be a systematic risk, which has not been captured in the traditional asset pricing models. We have also observed partial evidence favoring both behavioural and rational pricing explanations—the two widely acknowledged explanations in the literature behind this puzzle. On our further query in this connection, we have not seen any significant change in the puzzle due to the recent enactment of the Insolvency and Bankruptcy Code. Keywords: Stock returns; Credit risk; Credit risk-return puzzle; Insolvency and bankruptcy code (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:92:y:2020:i:c:p:195-206 DOI: 10.1016/j.econmod.2019.12.021 Access Statistics for this article Economic Modelling is currently edited by S. Hall and P. Pauly More articles in Economic Modelling from Elsevier |
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