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Why some Distressed Firms Have Low Expected Returns"

Author

Listed:
  • Takao Kobayashi

    (Faculty of Economics, University of Tokyo)

  • Ryoichi Ikeda

    (Graduate School of Economics, University of Tokyo)

Abstract

In recent years, empirical researchers show that the higher credit risk, the lower the cross-sectional average stock returns. Although it seems that this result is puzzling in a standard financial pricing theory, we show that, in a production based model with a zero-coupon bond, negative correlation between credit risk and expected stock return can be plausible.

Suggested Citation

  • Takao Kobayashi & Ryoichi Ikeda, 2007. "Why some Distressed Firms Have Low Expected Returns"," CIRJE F-Series CIRJE-F-504, CIRJE, Faculty of Economics, University of Tokyo.
    • Handle: RePEc:tky:fseres:2007cf504
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