RT Journal Article SR Electronic T1 Ex Ante Estimation of a Firm's Distress Risk Parameters from Bond Transaction Data JF The Journal of Fixed Income FD Institutional Investor Journals SP 6 OP 22 DO 10.3905/jfi.2009.19.2.006 VO 19 IS 2 A1 Sugato Chakravarty A1 Padma Kadiyala YR 2009 UL https://pm-research.com/content/19/2/6.abstract AB In this paper, we exploit the information in a publicly traded company’s stock and bond prices to es-timate its default probability and recovery rate. We document that estimated probabilities of default and recovery rates exhibit cross-sectional variation with the ratio of book to market equity and with industry affiliation. Additionally, dividend yield, and the term premium in Treasury bond yields influ-ence temporal variation in aggregate probabilities of default and in recovery rates. Such findings provide a deeper understanding of how default probability and recovery rate interact to determine the outcome when a firm ends up in financial distress.TOPICS: Fixed-income portfolio management, credit risk management, fundamental equity analysis, statistical methods