Is systematic default risk priced in equity returns?
Subtitle: a cross-sectional analysis using credit derivatives prices
By: prepared by Jorge A. Chan-Lau.
Contributors: International Monetary Fund. Monetary and Financial Systems Dept.
Series: IMF working paper -- WP/06/148
Publisher: International Monetary Fund, Monetary and Financial Systems Dept.
Published: 2006
Place of publication: Washington, D.C
Language: eng
Number of pages: 16
Subjects: Default (Finance) -- Econometric models.; Risk -- Econometric models.; Credit derivatives -- Prices -- Econometric models.; Corporations -- Valuation -- Econometric models.
Description: 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.
Notes: "June 2006."

Includes bibliographical references (p. 15-16).

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