University of South Carolina
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NBER Working Papers and Publications
|February 2010||Is Credit Event Risk Priced? Modeling Contagion via the Updating of Beliefs.|
with Pierre Collin-Dufresne, Robert S. Goldstein: w15733
Empirical tests of reduced form models of default attribute a large fraction of observed credit spreads to compensation for jump-to-default risk. However, these models preclude a "contagion-risk'' channel, where the aggregate corporate bond index reacts adversely to a credit event. In this paper, we propose a tractable model for pricing corporate bonds subject to contagion-risk. We show that when investors have fragile beliefs (Hansen and Sargent (2009)), contagion premia may be sizable even if P-measure contagion across defaults is small. We find empirical support for contagion in bond returns in response to large credit events. Model calibrations suggest that while contagion risk premia may be sizable, jump-to-default risk premia have an upper bound of a few basis points.
|August 2005||Why Do Firms Become Widely Held? An Analysis of the ynamics of Corporate Ownership|
with Christo Pirinsky, René M. Stulz: w11505
We consider IPO firms from 1970 to 2001 and examine the evolution of their insider ownership over time to understand better why and how U.S. firms that become widely held do so. In our sample, a majority of firms has insider ownership below 20% after ten years. We find that a firm's stock market performance and trading play an extremely important role in its insider ownership dynamics. Firms that experience large decreases in insider ownership and/or become widely held are firms with high valuations, good recent stock market performance, and liquid markets for their stocks. In contrast and surprisingly, variables suggested by agency theory have limited success in explaining the evolution of insider ownership.
Published: Stulz, Rene, Jean Helwege, and Christo Pirinsky. “Why do firms become widely held? An analysis of the dynamics of corporate ownership.” Journal of Finance 62 , 3 (2007): 995-1028. citation courtesy of