The impact of diverse measures of default risk on UK stock returns

Jie Chen and Paula Hill

Journal of Banking & Finance, 2013, vol. 37, issue 12, 5118-5131

Abstract: A number of recent papers examine the relationship between default risk and equity returns, and the results are mixed. These studies employ different measures of default risk and we find that correlations between eight diverse measures of default risk tend to be less than 50%. Nonetheless, we find that the relationship between stock returns and diverse measures of default risk tends to be consistent; default risk is a significant determinant of stock returns and this relationship is “hump backed”, as predicted by Garlappi and Yan (2011).

Keywords: Default risk; Credit rating; Probability of default; Stock returns (search for similar items in EconPapers)
JEL-codes: G32 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (12)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:37:y:2013:i:12:p:5118-5131

DOI: 10.1016/j.jbankfin.2013.06.013

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