Marketing

ARTICLE 1 (FROM THE JOURNAL OF FINANCE)

http://onlinelibrary.wiley.com/doi/10.1111/jofi.12143/pdf

The Cross-Section of Credit Risk Premia and Equity Returns

ABSTRACT

We explore the link between a firm's stock returns and 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 theory, we find that firms' stock returns increase with credit risk premia estimated from CDS spreads. Credit risk premia contain information not captured by physical or risk-neutral default probabilities alone. This sheds new light on the “distress puzzle” – the lack of a positive relation between equity returns and default probabilities – reported in previous studies.

1. NILS FRIEWALD, 

2. CHRISTIAN WAGNER,

3. JOSEF ZECHNER

ARTICLE 2 (FROM THE JOURNAL OF FINANCE)

http://onlinelibrary.wiley.com/doi/10.1111/jofi.12140/pdf

The Cross-Section of Managerial Ability, Incentives, and Risk Preferences

ABSTRACT

I estimate a dynamic investment model for mutual managers to study the cross-sectional distribution of ability, incentives, and risk preferences. The manager's compensation depends on the size of the fund, which fluctuates due to fund returns and due to fund flows that respond to the fund's relative performance. The model provides an economic interpretation of time-varying coefficients in performance regressions in terms of the structural parameters. I document that the estimates of fund alphas are precise and virtually unbiased. I find substantial heterogeneity in ability, risk preferences, and pay-for-performance sensitivities that relates to observable fund characteristics.

1. RALPH S.J. KOIJEN

ARTICLE 3 (FROM THE JOURNAL OF FINANCE)

http://onlinelibrary.wiley.com/doi/10.1111/jofi.12124/pdf

Sovereign Default, Domestic Banks, and Financial Institutions...