Does Default Effect Exist in Taiwan Stock Market?

• Main Authors: Chai-Wei Chuang, 莊家偉
• Other Authors: Jun-Biao Lin
• Format: Others
• Language: zh-TW
• Online Access: http://ndltd.ncl.edu.tw/handle/90054198792538237796

碩士 === 國立高雄第一科技大學 === 金融營運所 === 97 === his study investigates the relationship between default risk, size, book-to-market ratio and equity returns. Our concept derives from Vassalou and Xing (2004; JF). In their paper, they assumed an unrealistic path-independent structure and an unsuitable proxy for market assets value that typically lead implied barriers larger than the book value of debt. In this study, we modify their framework by using barrier option framework instead of Merton’s (1974) model, which may lead default risk effect to be statistically significant. We then use Duan’s (2005) maximum likelihood method to measure firm’s default risk and analyze the interrelation between default risk and size effect, book-to-market effect. We find that size effect and book-to-market effect indeed exist in Taiwan, but default risk effect does not. When default risk factor is added to assets pricing model, we find that default risk is a part of systematic rick. It implies that default risk factor might not play an important role in explaining stock returns in Taiwan.