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

  • Chen, Jie
  • Hill, Paula
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    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).

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    File URL: http://www.sciencedirect.com/science/article/pii/S0378426613003014
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    Article provided by Elsevier in its journal Journal of Banking & Finance.

    Volume (Year): 37 (2013)
    Issue (Month): 12 ()
    Pages: 5118-5131

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    Handle: RePEc:eee:jbfina:v:37:y:2013:i:12:p:5118-5131
    Contact details of provider: Web page: http://www.elsevier.com/locate/jbf

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    1. Wadhwani, Sushil & Wall, Martin, 1990. "The Effects of Profit-Sharing on Employment, Wages, Stock Returns and Productivity: Evidence from UK Micro-data," Economic Journal, Royal Economic Society, vol. 100(399), pages 1-17, March.
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    7. Marshall E. Blume & Felix Lim & A. Craig Mackinlay, 1998. "The Declining Credit Quality of U.S. Corporate Debt: Myth or Reality?," Journal of Finance, American Finance Association, vol. 53(4), pages 1389-1413, 08.
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    19. Paula Hill & Robert Faff, 2010. "The Market Impact of Relative Agency Activity in the Sovereign Ratings Market," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 37(9-10), pages 1309-1347, November/.
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    25. repec:fth:pennfi:67 is not listed on IDEAS
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