This paper examines the relationship between default probability and stock returns. Using the Expected Default Frequency (EDF) of Moody's KMV, we document that higher default probabilities are not associated with higher expected stock returns. Within a model of bargaining between equity holders...

In this paper, we study the relationship between default probability and stock returns. Using the market-based measure of Expected Default Frequency* (EDF) constructed by Moody's KVM, we first demonstrate that higher default probabilities are not necessarily associated with higher expected stock...

This paper examines the relationship between default probability and stock returns. Using the Expected Default Frequency (EDF) of Moody's KMV, we document that higher default probabilities are not associated with higher expected stock returns. Within a model of bargaining between equity-holders...

We explicitly consider financial leverage in a simple equity valuation model and study the cross-sectional implications of potential shareholder recovery upon resolution of financial distress. We show that our model is capable of simultaneously explaining lower returns for financially distressed...

We study the effects of local religious beliefs on mutual fund risk-taking behaviors. Funds located in <i>low</i>-Protestant or <i>high</i>-Catholic areas exhibit significantly higher fund return volatilities. Similar differences persist when we use the religiosity ratios at fund managers' college locations....