We show that unpriced cash flow shocks contain information about future priced risk. A positive idiosyncratic shock decreases the sensitivity of firm value to priced risk factors and simultaneously increases firm size and idiosyncratic risk. A simple model can therefore explain book-to-market...

A hedging contract may be closed before maturity when a firm experiences an ``event of default,'' such as a credit downgrade, non-payment, or bankruptcy filing. Counterparties often exercise such termination right and are more likely to do so if the firm owes them money, leaving the firm exposed...