Default and Idiosyncratic Risk Anomalies Revisited
42 Pages Posted: 15 Nov 2011
Date Written: September 30, 2011
This paper studies the default anomaly that has been documented in the literature. We show that after controlling for the default-risk premium the default anomaly disappears. In contrast, controlling for credit spreads does not fully eliminate the anomaly. We also relate our results to the IVOL anomaly and find evidence that this anomaly disappears when one controls for default risk via the default-risk premia.
Keywords: Risk Premium, Default Risk, Fama-French Regressions, IVOL anomaly
JEL Classification: G10, G12
Suggested Citation: Suggested Citation