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Seminar i økonomi og finans - 7. mars 2012

Velkommen til åpent seminar onsdag 7. mars kl 13:00 med Christian Wagner fra University of Vienna. Tittel: The Cross-Section of Credit Risk Premia and Equity Returns

Abstract: Structural models `a la Merton (1974) imply that firms’ risk premia in equity and credit markets are related. We explore this relation, using the joint cross-section of stock returns and risk premia estimated from forward credit default swap (CDS) spreads.

Consistent with structural models, we find that firms’ equity returns and Sharpe ratios increase with estimated credit risk premia and that the returns of buying high and selling low credit risk premium firms cannot be explained by traditional risk factors. Credit risk premia contain equity-relevant information neither captured by risk-neutral nor by actual default probabilities. This sheds new light on the distress puzzle, i.e. the lack of a positive relation between equity returns and default probabilities reported in previous studies. Our results are robust across precrisis and crisis sub-samples, return weighting schemes, full- and out-of-sample parameter estimations, and CDS data sources.

Servering av vafler og kaffe.

Tid: Onsdag 7 mars kl. 13.00

Sted: Ellen & Axel Lunds hus, møterom H-125