Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
10226863 | Research in International Business and Finance | 2018 | 34 Pages |
Abstract
Our study examines whether financial distress risk is systematic risk using twelve portfolios sorted by size, book-to-market, and leverage and a portfolio of distressed firms covering an 18-year period. It also tests the explanatory power of the risk factors that best capture default risk. The empirical findings show that: (i) equity portfolio investment requires systematically both size and value premiums and that SMB and HML capture additional risk missed by the market portfolio; (ii) the leverage risk premium is positive for highly leveraged firms; and (iii) the risk premium for the relative distress factor is significant only for the distressed firm portfolio. Overall, our results have practical implications for portfolio managers since they advocate a leverage-augmented three-factor model to accurately price assets and to implement efficient portfolio strategies.
Related Topics
Social Sciences and Humanities
Business, Management and Accounting
Business and International Management
Authors
Sabri Boubaker, Taher Hamza, Javier Vidal-GarcÃa,