Over the course of a few decades, asset securitization has evolved into a vast and diverse financial instrument. Bases for the marketability of these securities are valuation and risk management techniques allowing for reasonable pricing formulas and hedging schemes. Therefore, a key issue is...

This paper shows theoretically and empirically that beta- and volatility-based low risk anomalies are driven by return skewness. The empirical patterns con- cisely match the predictions of our model which generates skewness of stock returns via default risk. With increasing downside risk, the...

We explore the link between a firm's stock returns and its credit risk using a simple insight from structural models following Merton (1974): risk premia on equity and credit instruments are related because all claims on assets must earn the same compensation per unit of risk. Consistent with...