Term Structure of Credit Spreads and Cross – Section of Stock Returns ∗

@inproceedings{Han2014TermSO,
  title={Term Structure of Credit Spreads and Cross – Section of Stock Returns ∗},
  author={Bing Han and Avanidhar Subrahmanyam and Yi Zhou},
  year={2014}
}
The term structure of credit default swap (CDS) spreads contains useful information about the firm’s fundamentals. Companies with a high CDS slope tend to experience increases in default risk, negative earning surprises and lower profitability in the future. Such information gets incorporated only gradually into stock prices. Firms in the lowest decile of CDS slope outperform the highest decile by 1.20% per month. This result holds mainly for stocks facing high arbitrage costs and during… CONTINUE READING

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