We empirically test the theoretical prediction of the impact of debt market liquidity on correlated default risk. Confirming the theory, our results indicate that the lower debt market liquidity, leads to an economically significant increase in the correlated default risk. Also consistent with theory, we show that this effect is more pronounced for short-term debt.
Javadi, S., & Mollagholamali, M. (2018). Debt market illiquidity and correlated default risk. Finance Research Letters, 26, 266–273. https://doi.org/10.1016/j.frl.2018.02.002
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Finance Research Letters