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

Author

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  • Chen, Jie
  • Hill, Paula

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).

Suggested Citation

  • Chen, Jie & Hill, Paula, 2013. "The impact of diverse measures of default risk on UK stock returns," Journal of Banking & Finance, Elsevier, vol. 37(12), pages 5118-5131.
  • Handle: RePEc:eee:jbfina:v:37:y:2013:i:12:p:5118-5131
    DOI: 10.1016/j.jbankfin.2013.06.013
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    References listed on IDEAS

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    Cited by:

    1. Nawar Hashem & Larry Su, 2015. "Industry Concentration and the Cross-Section of Stock Returns: Evidence from the UK," Journal of Business Economics and Management, Taylor & Francis Journals, vol. 16(4), pages 769-785, August.
    2. Idrees, Sahar & Qayyum, Abdul, 2018. "The Impact of Financial Distress Risk on Equity Returns: A Case Study of Non-Financial Firms of Pakistan Stock Exchange," MPRA Paper 85346, University Library of Munich, Germany.
    3. Koerniadi, Hardjo & Krishnamurti, Chandrasekhar & Tourani-Rad, Alireza, 2015. "Cross-border mergers and acquisitions and default risk," International Review of Financial Analysis, Elsevier, vol. 42(C), pages 336-348.
    4. repec:eee:intfin:v:51:y:2017:i:c:p:39-57 is not listed on IDEAS
    5. repec:eee:corfin:v:48:y:2018:i:c:p:292-313 is not listed on IDEAS

    More about this item

    Keywords

    Default risk; Credit rating; Probability of default; Stock returns;

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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