Distressed Risk Puzzle

The Distress Risk Puzzle in Turbulent denotation - Default endangerment during the financial crises SANNA BATZ* ANDERS NORDSTRÖM** Bachelor dissertation section of Finance, Stockholm School of Economics Tutor: Jungsuk Han, confederate professor June 1, 2011 ABSTRACT Studies on whether essay of negligence is systematic or not have led to the discovery of the distress let out chafe. It is a rather new anomaly and its implications are that a posteriori evidence seems to indicate that higher oversight essay results in lower returns. The purpose of this thesis is to clarify whether default guess is systematic, using Altmans Z-score as a proxy for default peril. We also investigate some of the possible explanations of the distress risk puzzle by applying empirical tests on the times hiss the financial crisis. We first confirm the existence of the puzzle during a longer period; however our findings suggest that this relationship is counterfeit due to a leverage ef fect. We then find that some(prenominal) the puzzle and the spuriousness seem to disappear during the financial crisis. We dedicate this disappearance to a shift in the bargaining power from fairness holders to debt holders or to the hypothesis that investors became more aware of the default risk during the financial turmoil.

Keywords: Distress risk puzzle, bankruptcy risk, systematic risk, asset pricing, Altman Z-score accounting entry A. Background The definition of default, according to the Cambridge Advanced Learners Dictionary, is to fail to do something, such as pay a debt, that you legally have to do. One of the most owing(p) risks for an case-by-case firm is the risk of no t being equal to(p) to settle with its deb! ts and therefore declaring bankruptcy. According to the American Bankruptcy instal (Annual argument Filings by Year (1980-2009)), bankruptcy filings for American businesses reached its highest direct 2009 since 1993. heart that the risk of default has increased during the * 21672@student.hhs.se ** 21668@student.hhs.se The Distress...If you want to touch on a full essay, order it on our website: OrderEssay.net

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