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Systemic Default and Return Predictability in the Stock and Bond Markets

Finance Discipline Group 
Research Seminars in Finance
Topic: Systemic Default and Return Predictability in the Stock and Bond Markets
SpeakerKewei Hou, Ohio State University
Using a structural model of default, we construct a measure of systemic default defined as the probability that many firms default at the same time. Our estimation accounts for correlations in defaults between firms through common exposures to shocks. The systemic default measure spikes during recession periods, is strongly correlated with traditional credit-related macroeconomic measures such as the default spread and VIX, and predicts future realized defaults. Furthermore, our measure predicts future equity and corporate bond index returns, particularly at the one-year horizon, and even after controlling for many traditional return predictors such as the dividend yield, default spread, inflation, and tail risk. These predictability results are robust to out-of-sample tests.
A light lunch will be provided at 1p.m. Please RSVP for catering purposes to Mala Kapahi by 12 noon on Monday 27th February.
Date: Wednesday,1st March 2017      
Time: 12.00 – 1.00 p.m.
Venue: University of Technology, Sydney
             Building 8
             Dr Chau Chak Wing Building
             14 - 28 Ultimo Road, Ultimo
Co-ordinator: Adrian Lee (Ph: +61 2 9514 7765)
Enquiries: Mala Kapahi (Ph: +61 2 9514 7777)


1 March 2017
12:00 pm - 1:00 pm


City - HaymarketCB08 Dr Chau Chak Wing Building, Building 8