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SUMMARY:How Does A Firm’s Default Risk Affect Its Expected - Kevin Aretz
 \, Manchester Business School
DTSTART:20120221T170000Z
DTEND:20120221T180000Z
UID:TALK36472@talks.cam.ac.uk
CONTACT:Sheryl Anderson
DESCRIPTION:In a Black and Scholes (1973) economy\, a firm’s default ris
 k and its expected equity return are\nnon-monotonically related. This resu
 lt may explain the surprising relation found between these\ntwo variables 
 in recent empirical research. Although changes in default risk induced by 
 expected\nprofitability and leverage effects correlate positively with cha
 nges in the expected equity return\,\nan increase in default risk induced 
 by changing asset volatility can have a negative impact on the\nexpected e
 quity return if default risk is high. Empirical evidence based on cross-se
 ctional and\ntime-series tests supports the main testable implications of 
 the theoretical model.\nKeywords Default risk premium\, asset pricing\, ma
 croeconomic conditions\nJEL Classification G11\, G12\, G15\nThis version O
 ctober 22\, 2011\n* The author is at Lancaster University Management Schoo
 l. Address for correspondence: Kevin Aretz\, Department of Accounting & Fi
 nance\, Lancaster University Management School\, Bailrigg\, Lancaster LA1 
 4YX\, UK\, tel.: +44(0)1524-593 402\, fax.: +44(0)1524-847 321\, e-mail: <
 k.aretz@lancaster.ac.uk>. Thanks are due to Michael Brennan\, Tom George\,
  Chris Florackis\, Massimo Guidolin\, Alex Kostakis\, Aneel Keswani\, Dick
  Stapleton\, MartinWiddicks and seminar participants at Cass Business Scho
 ol (CBS)\, Liverpool University\, Manchester Business School (MBS) and the
  2010 Annual Meeting of the Financial Management Association in New York f
 or very helpful comments and suggestions. I am especially indebted to Mich
 ael Brennan who helped me to prepare the manuscript for submission. I very
  gratefully acknowledge research funding from the Lancaster University Sma
 ll Grant Scheme.
LOCATION:Barbara White Room\, Newnham College
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