Is the Value Premium Really a Compensation for Distress Risk?
Wilma De Groot
Robeco Asset Management
Erasmus University - Rotterdam School of Management; Robeco Quantitative Strategies; Erasmus University Rotterdam (EUR) - Erasmus Research Institute of Management (ERIM)
May 13, 2011
This study provides a comprehensive investigation of the relation between the value anomaly and distress risk. Using risk measures based on accounting models, structural models, credit spreads and credit ratings, we find no relation between the value premium and distress risk. Our findings are inconsistent with the notion that the value effect is a compensation for distress risk.
Number of Pages in PDF File: 58
Keywords: book-to-market effect, value anomaly, market efficiency, default risk, bankruptcy, credit spread, bond spread, distress risk, credit rating, size effect
JEL Classification: G11, G12, G14working papers series
Date posted: May 14, 2011 ; Last revised: March 3, 2012
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