We develop a four-factor model intended to capture size, value, and credit rating transition patterns in excess returns for a panel of predominantly mid- and large-cap entities. Using credit transition matrices and rating histories from 48 US issuers, we provide evidence to support a...

De- and re-levering betas is important to obtain discount rates for assets that are not publicly traded. A de- and re-levering procedure is around for the case of risk-free debt. The procedure for risky debt is much less clear even under very simplifying assumptions. In this paper, I concretize...

This paper analyses the risk and return of loans portfolios in a joint setting. I develop a model to obtain the distribution of loans returns. I use this model to describe the investment opportunity set of lenders using mean-variance analysis with a Value at Risk constraint. I also obtain closed...

In this paper, we intend to explain an empirical finding that distressed stocks delivered anomalously low returns (Campbell et. al. (2008)). We show that in a model where investors have heterogeneous preferences, the expected return of risky assets depends on idiosyncratic coskewness betas,...

The goal of this paper is to show that household-level financial distress (FD) varies greatly, meaning there is unequal exposure to macroeconomic risk, and that FD can increase macroeconomic vulnerability. To do this, we first establish three facts: (i) regions in the U.S. vary significantly in...

This article computes the returns from dynamic hedging of the interest rate and prepayment risks of insured fixed rate mortgages. Changing durations cause dynamic hedges with futures markets. Nonparallel shifts in the yield curve are also investigated. Hedges are found to be risk-reducing, but...

We describe a novel currency investment strategy, the ‘dollar carry trade,’ which delivers large excess returns, uncorrelated with the returns on well-known carry trade strategies. Using a no-arbitrage model of exchange rates we show that these excess returns compensate U.S. investors for...

Global bonds are international securities designed to be traded and settled efficiently in multiple markets. This paper studies global bonds to examine the effects of multimarket trading on corporate bond liquidity, prices, and the cost of debt. Using a sample of primary and secondary market...

This paper presents and compares several time-series models for returns of broadbased stock indices. These models nest a nonlinear asymmetric GARCH (NGARCH) model as a special case. Some of these models are empirically motivated ad-hoc specifications others are derived from a representative...