Topic: Systemic Default and Return Predictability in the Stock and Bond Markets
Speaker: Shaojun Zhang, Assistant Professor of Finance, School of Economics and Finance, University of Hong Kong
Date: December 2nd (Wed.)
Time: 2:30pm-3:30pm
Location: Building 1, Room 200
Language: English
Abstract:
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 and is strongly correlated with traditional credit-based macroeconomic measures such as the default spread. 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.
About the speaker:
Shaojun Zhang is an assistant professor of finance at School of Economics and Finance, University of Hong Kong. She received her Ph.D. in Finance from New York University, and she also holds a B.A. in Finance from Peking University. Zhang teaches Derivatives and Foundations of Finance for undergraduate students. Her primary research focuses on asset pricing, macro finance and international finance.
