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Default risk premium and asset prices

Corvino, R. & Fusai, G. ORCID: 0000-0001-9215-2586 (2022). Default risk premium and asset prices. Journal of Financial Stability, 60, article number 101014. doi: 10.1016/j.jfs.2022.101014


We estimate a standard structural model of credit risk to draw insights about the premium demanded by investors for bearing default risk, using data on credit default swaps and market capitalization. We pin down the daily market value of assets for a set of non-financial firms and uncover cross-sectional heterogeneity in terms of the magnitude and time variation of the premium. By exploring the link between asset and default risk premia, we show that this heterogeneity closely depends on the relationship between the firm-specific market value of the assets and the business cycle.

Publication Type: Article
Additional Information: © 2022. This manuscript version is made available under the CC-BY-NC-ND 4.0 license
Publisher Keywords: Default risk, Risk premium, Structural model, Assets value, Business cycle
Subjects: H Social Sciences > HB Economic Theory
H Social Sciences > HG Finance
Departments: Bayes Business School > Finance
SWORD Depositor:
[thumbnail of SSRN-id2611984 (1).pdf]
Text - Accepted Version
Available under License Creative Commons Attribution Non-commercial No Derivatives.

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