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  • Marti G Subrahmanyam, Yongjun Tang, Sarah Qian Wang, Viral Acharya, Edward Altman, Yakov Amihud +51 others
  • 2014
We use credit default swaps (CDS) trading data to demonstrate that the credit risk of reference firms, reflected in rating downgrades and bankruptcies, increases significantly upon the inception of CDS trading, a finding that is robust after controlling for the endogeneity of CDS trading. Additionally, distressed firms are more likely to file for bankruptcy(More)
  • P Luboš, Pietro Astor, Veronesi, Fernando Alvarez, Frederico Belo, Jaroslav Borovička +17 others
We analyze how changes in government policy affect stock prices. Our general equilibrium model features uncertainty about government policy and a government whose decisions have both economic and non-economic motives. The model makes numerous empirical predictions. Stock prices should fall at the announcement of a policy change, on average. The price(More)
  • Javier Bianchi, Enrique G Mendoza, Rui Albuquerque, Kenza Benhima, Charles Engel, Russ Cooper +12 others
  • 2012
An equilibrium model of financial crises driven by Irving Fisher's financial amplification mechanism features a pecuniary externality, because private agents do not internalize how the price of assets used for collateral respond to collective borrowing decisions, particularly when binding collateral constraints cause asset fire-sales and lead to a financial(More)
The Great Recession of 2008-09 offers a primary example of the importance of credit risk to the macroeconomy. This paper develops a novel framework that brings together core ideas from asset pricing, capital structure, and macroeconomics within a tractable general equilibrium model with heterogeneous firms making optimal investment and financing decisions(More)
Credit spreads are large, volatile and countercyclical, and recent empirical work suggests that risk premia, not expected credit losses, are responsible for these features. Building on the idea that corporate debt, while fairly safe in ordinary recessions, is exposed to economic depressions , this paper embeds a trade-off theory of capital structure into a(More)
  • Howard Kung, Lukas Schmid, Hengjie Ai, Ravi Bansal, Gian Luca Clementi, John Coleman +15 others
  • 2012
Asset prices reflect anticipations of future growth. We examine the asset pricing implications of a production economy whose long-term growth prospects are endoge-nously determined by innovation and R&D. In equilibrium, R&D endogenously drives a small, persistent component in productivity which generates long-run uncertainty about economic growth. With(More)
  • Harjoat S Bhamra, Lars-Alexander Kuehn, Ilya A Strebulaev, Malcolm Baker, Alexander David, Glen Donaldson +9 others
  • 2007
* We would like to thank Adlai Fisher for sharing his understanding of Markov switching models with us. We are grateful for comments from Costis Skiadas, the WFA discussant and Abstract Much empirical work indicates that there are common factors that drive the equity risk premium and credit spreads. In this paper, we embed a structural model of credit risk(More)
  • Lars-Alexander Kuehn, Lukas Schmid, David Backus, David Chapman, Hui Chen, Mike Chernov +7 others
  • 2011
A standard assumption of structural models of default is that firms assets evolve exoge-nously. In this paper, we document the importance of accounting for investment options in models of credit risk. In the presence of financing and investment frictions, firm-level variables which proxy for asset composition carry explanatory power for credit spreads(More)
  • Steven R Grenadier, Andrey Malenko, Geert Bekaert, Jonathan Berk, Thomas Chemmanur, Barney Hartman-Glaser +8 others
  • 2010
Traditional real options models demonstrate the importance of the " option to wait " due to uncertainty over future shocks to project cash flows. However, there is often another important source of uncertainty: uncertainty over the permanence of past shocks. Adding Bayesian uncertainty over the permanence of past shocks augments the traditional option to(More)