Credit risk and stock return - An investigation of the credit risk premium
(2018) NEKN02 20181Department of Economics
- Abstract
- Several researchers have investigated the relationship between credit risk and stock returns, but their findings are ambiguous. While some have found the anomalous relationship that investors pay a negative risk premium when investing in high credit risk stocks, others have presented opposing results. This non-consensus and intriguing results motivated us to further investigate this relationship by examining the returns of approximately 8000 stocks in the U.S. during the period 2007-2017. To find if there is an anomalous relationship we used a multi-factor model incorporating market excess return and the firm-specific factors; size, value and credit ratings. Our results indicate that credit ratings can be used to explain stock return and... (More)
- Several researchers have investigated the relationship between credit risk and stock returns, but their findings are ambiguous. While some have found the anomalous relationship that investors pay a negative risk premium when investing in high credit risk stocks, others have presented opposing results. This non-consensus and intriguing results motivated us to further investigate this relationship by examining the returns of approximately 8000 stocks in the U.S. during the period 2007-2017. To find if there is an anomalous relationship we used a multi-factor model incorporating market excess return and the firm-specific factors; size, value and credit ratings. Our results indicate that credit ratings can be used to explain stock return and that there is a positive relationship between the credit risk and stock return. (Less)
Please use this url to cite or link to this publication:
http://lup.lub.lu.se/student-papers/record/8948373
- author
- Melander Norinder, Axel LU and Svensson, Magnus LU
- supervisor
- organization
- course
- NEKN02 20181
- year
- 2018
- type
- H1 - Master's Degree (One Year)
- subject
- keywords
- credit rating, credit risk, U.S. market, stock returns, risk premiuml
- language
- English
- id
- 8948373
- date added to LUP
- 2018-07-02 15:41:01
- date last changed
- 2018-07-02 15:41:01
@misc{8948373, abstract = {{Several researchers have investigated the relationship between credit risk and stock returns, but their findings are ambiguous. While some have found the anomalous relationship that investors pay a negative risk premium when investing in high credit risk stocks, others have presented opposing results. This non-consensus and intriguing results motivated us to further investigate this relationship by examining the returns of approximately 8000 stocks in the U.S. during the period 2007-2017. To find if there is an anomalous relationship we used a multi-factor model incorporating market excess return and the firm-specific factors; size, value and credit ratings. Our results indicate that credit ratings can be used to explain stock return and that there is a positive relationship between the credit risk and stock return.}}, author = {{Melander Norinder, Axel and Svensson, Magnus}}, language = {{eng}}, note = {{Student Paper}}, title = {{Credit risk and stock return - An investigation of the credit risk premium}}, year = {{2018}}, }