Journal
JOURNAL OF FINANCIAL ECONOMICS
Volume 83, Issue 3, Pages 635-665Publisher
ELSEVIER SCIENCE SA
DOI: 10.1016/j.jfineco.2005.10.011
Keywords
default; bankruptcy; duration analysis; doubly stochastic; distance to default
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We provide maximum likelihood estimators of term structures of conditional probabilities of corporate default, incorporating the dynamics of firm-specific and macroeconomic covariates. For US Industrial firms, based on over 390,000 firm-months of data spanning 1980 to 2004, the term structure of conditional future default probabilities depends on a firm's distance to default (a volatility-adjusted measure of leverage), on the firm's trailing stock return, on trailing S&P 500 returns, and on US interest rates. The out-of-sample predictive performance of the model is an improvement over that of other available models. (c) 2006 Elsevier B.V. All rights reserved.
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