Default risk premium and asset prices

Raffaele Corvino and Gianluca Fusai

Journal of Financial Stability, 2022, vol. 60, issue C

Abstract: We estimate a standard structural model of credit risk to draw insights about the premium demanded by investors for bearing default risk, using data on credit default swaps and market capitalization. We pin down the daily market value of assets for a set of non-financial firms and uncover cross-sectional heterogeneity in terms of the magnitude and time variation of the premium. By exploring the link between asset and default risk premia, we show that this heterogeneity closely depends on the relationship between the firm-specific market value of the assets and the business cycle.

Keywords: Default risk; Risk premium; Structural model; Assets value; Business cycle (search for similar items in EconPapers)
JEL-codes: C4 G12 G32 G33 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finsta:v:60:y:2022:i:c:s1572308922000390

DOI: 10.1016/j.jfs.2022.101014

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