The Bright Side of Distress Risk

69 Pages Posted: 31 Aug 2015 Last revised: 17 Sep 2019

See all articles by Alexander Barinov

Alexander Barinov

University of California Riverside

Date Written: August 10, 2019

Abstract

The paper shows that distressed firms have positive abnormal returns when aggregate volatility unexpectedly increases. This hedging property of distressed firms explains the puzzling negative relation between firm-specific distress risk and future alphas from benchmark asset-pricing models. Controlling for aggregate volatility risk exposure also explains why the negative relation is stronger for volatile firms and growth firms.

Keywords: distress, default, aggregate volatility risk, credit ratings, idiosyncratic volatility, anomalies

JEL Classification: G11, G12, E44

Suggested Citation

Barinov, Alexander, The Bright Side of Distress Risk (August 10, 2019). Available at SSRN: https://ssrn.com/abstract=2653280 or http://dx.doi.org/10.2139/ssrn.2653280

Alexander Barinov (Contact Author)

University of California Riverside ( email )

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Anderson Hall
Riverside, CA 92521
United States
585-698-7726 (Phone)

HOME PAGE: http://faculty.ucr.edu/~abarinov/

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