  We compare two models of corporate default by calculating the
Jeffreys-Kullback-Leibler divergence between their predicted default
probabilities when asset correlations are either high or low. Our main results
show that the divergence between the two models increases in highly correlated,
volatile, and large markets, but that it is closer to zero in small markets,
when asset correlations are low and firms are highly leveraged. These findings
suggest that during periods of financial instability the single-and
multi-factor models of corporate default will generate increasingly
inconsistent predictions.
