FRIC/Finance Seminar with Scott Richardson, London Business School
FRIC Center for Financial Frictions and the Department of Finance are proud to announce the upcoming seminar with Scott Richardson, London Business School
Scott Richardson will present:
Maria Correia, London Business School
Johnny Kang, AQR Capital Management LLC
Scott Richardson, London Business School
Asset volatility is a primitive variable in structural models of credit spreads. We evaluate alternative measures of asset volatility using information from (i) historical security returns (both equity and credit), (ii) implied volatilities extracted from equity options, and (iii) financial statements. For a large sample of US firms, we find that combining information from all three sources improves the explanatory power of corporate bankruptcy models and cross-sectional variation in credit spreads. Market based (accounting) measures of asset volatility appear to reflect systematic (idiosyncratic) sources of volatility and combining both sources of information generates a superior measure of total asset volatility that is relevant for understanding credit spreads.
Solbjerg Plads 3, 2000 Frederiksberg