Equity Misvaluation and Default Options

• 成果类型: Article
• 署名作者: Eisdorfer, Assaf; Goyal, Amit; Zhdanov, Alexei
• 署名单位: University of Connecticut; University of Lausanne; Swiss Finance Institute (SFI); Pennsylvania Commonwealth System of Higher Education (PCSHE); Pennsylvania State University; Pennsylvania State University - University Park
• 刊物名称: JOURNAL OF FINANCE
• ISSN/ISSBN: 0022-1082
• DOI: 10.1111/jofi.12748
• 发表日期: 2019
• 页码: 845-898
• 关键词: cross-section; institutional investors; corporate-finance; capital structure; stock returns; Credit risk; MARKET; INFORMATION; distress; INVESTMENT

摘要

We study whether default options are mispriced in equity values by employing a structural equity valuation model that explicitly takes into account the value of the option to default (or abandon the firm) and uses firm-specific inputs. We implement our model on the entire cross section of stocks and identify both over- and underpriced equities. An investment strategy that buys undervalued stocks and shorts overvalued stocks generates an annual four-factor alpha of about 11% for U.S. stocks. The model's performance is stronger for stocks with a higher value of the default option, such as distressed or highly volatile stocks.