We document that (i) debt-to-equity ratios and levered equity betas negatively covary with the market risk premium in distressed firms; (ii) the negative covariance generates negative alphas among those firms. We build a dynamic credit risk model to understand the negative covariance between equity betas and the market risk premium, via endogenous and dynamic debt financing over the business cycles. Because of endogenous debt financing and distress, our model naturally connects the negative failure probability-return relation to the positive distress risk premium-return relation.

中文翻译：

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遇险风险谜题的统一模型

我们记录了 (i) 债务权益比率和杠杆股权贝塔系数与陷入困境的公司的市场风险溢价呈负相关；(ii) 负协方差在这些公司中产生负的 alpha。我们建立了一个动态信用风险模型，通过商业周期内的内生和动态债务融资来了解股权贝塔与市场风险溢价之间的负协方差。由于内生债务融资和困境，我们的模型自然地将负失败概率-收益关系与正困境风险溢价-收益关系联系起来。