Article citationsMore>>

George, T. and Hwang, C. (2010) A Resolution of the Distress Risk and Leverage Puzzles in the Cross Section of Stock Returns. Journal of Financial Economics, 96, 56-79.
https://doi.org/10.1016/j.jfineco.2009.11.003

has been cited by the following article:

• TITLE: Leverage, Default Risk, and the Cross-Section of Equity and Firm Returns

  AUTHORS: Frederick M. Hood III

  KEYWORDS: Default Risk, Distress Risk, Beta Estimation, Value Premium

  JOURNAL NAME: Modern Economy, Vol.7 No.14, December 14, 2016

  ABSTRACT: I examine the two components of default risk and how they relate to stock returns, size, and book-to-market. High default risk firms do not necessarily have high levels of systematic asset risk. I show that the two components of default risk, asset volatility and leverage, are negatively related. I provide evidence that leverage differences across firms are not reflected in equity betas. Therefore, I construct firm returns using estimates of firm’s debt returns. The results indicate that a large part of the value premium and some of the size premium can be explained by differences in leverage across firms.