Skip to main content
×
Home
    • Aa
    • Aa
  • Get access
    Check if you have access via personal or institutional login
  • Cited by 17
  • Cited by
    This article has been cited by the following publications. This list is generated based on data provided by CrossRef.

    Chang, Woo-Jin Hayes, Rachel M. and Hillegeist, Stephen A. 2016. Financial Distress Risk and New CEO Compensation. Management Science, Vol. 62, Issue. 2, p. 479.


    Chen, Long Zhang, Gaiyan and Zhang, Weina 2016. Return predictability in the corporate bond market along the supply chain. Journal of Financial Markets, Vol. 29, p. 66.


    Filipe, Sara Ferreira Grammatikos, Theoharry and Michala, Dimitra 2016. Pricing Default Risk: The Good, The Bad, and The Anomaly. Journal of Financial Stability,


    Kim, Gi H. Li, Haitao and Zhang, Weina 2016. CDS-bond basis and bond return predictability. Journal of Empirical Finance,


    Yeh, Chung-Ying Hsu, Junming Wang, Kai-Li and Lin, Che-Hui 2015. Explaining the default risk anomaly by the two-beta model. Journal of Empirical Finance, Vol. 30, p. 16.


    Conrad, Jennifer Kapadia, Nishad and Xing, Yuhang 2014. Death and jackpot: Why do individual investors hold overpriced stocks?. Journal of Financial Economics, Vol. 113, Issue. 3, p. 455.


    Da, Zhi Liu, Qianqiu and Schaumburg, Ernst 2014. A Closer Look at the Short-Term Return Reversal. Management Science, Vol. 60, Issue. 3, p. 658.


    Ye, Qing and Turner, John D. 2014. The cross-section of stock returns in an early stock market. International Review of Financial Analysis, Vol. 34, p. 114.


    Charitou, Andreas Dionysiou, Dionysia Lambertides, Neophytos and Trigeorgis, Lenos 2013. Alternative bankruptcy prediction models using option-pricing theory. Journal of Banking & Finance, Vol. 37, Issue. 7, p. 2329.


    Chen, Che-Min and Lee, Han-Hsing 2013. Default Risk, Liquidity Risk, and Equity Returns: Evidence from the Taiwan Market. Emerging Markets Finance and Trade, Vol. 49, Issue. 1, p. 101.


    Wei, Kelsey D. and Starks, Laura T. 2013. Foreign Exchange Exposure Elasticity and Financial Distress. Financial Management, Vol. 42, Issue. 4, p. 709.


    O'Doherty, Michael S. 2012. On the Conditional Risk and Performance of Financially Distressed Stocks. Management Science, Vol. 58, Issue. 8, p. 1502.


    Cai, Jie and Zhang, Zhe 2011. Leverage change, debt overhang, and stock prices. Journal of Corporate Finance, Vol. 17, Issue. 3, p. 391.


    Da, Zhi Gao, Pengjie and Jagannathan, Ravi 2011. Impatient Trading, Liquidity Provision, and Stock Selection by Mutual Funds. Review of Financial Studies, Vol. 24, Issue. 3, p. 675.


    GARLAPPI, LORENZO and YAN, HONG 2011. Financial Distress and the Cross-section of Equity Returns. The Journal of Finance, Vol. 66, Issue. 3, p. 789.


    Huang, Rongbing and Zhang, Donghang 2011. Managing Underwriters and the Marketing of Seasoned Equity Offerings. Journal of Financial and Quantitative Analysis, Vol. 46, Issue. 01, p. 141.


    Pavlova, Ivelina and Parhizgari, A. M. 2011. In search of momentum profits: are they illusory?. Applied Financial Economics, Vol. 21, Issue. 21, p. 1617.


    ×
  • Journal of Financial and Quantitative Analysis, Volume 45, Issue 1
  • February 2010, pp. 27-48

Clientele Change, Liquidity Shock, and the Return on Financially Distressed Stocks

  • Zhi Da (a1) and Pengjie Gao (a2)
  • DOI: http://dx.doi.org/10.1017/S0022109010000013
  • Published online: 01 January 2010
Abstract
Abstract

We show that the abnormal returns on high default risk stocks documented by Vassalou and Xing (2004) are driven by short-term return reversals rather than systematic default risk. These abnormal returns occur only during the month after portfolio formation and are concentrated in a small subset of stocks that had recently experienced large negative returns. Empirical evidence supports the view that the short-term return reversal arises from a liquidity shock triggered by a clientele change.

Copyright
Linked references
Hide All

This list contains references from the content that can be linked to their source. For a full set of references and notes please see the PDF or HTML where available.

A. Almazan ; K. C. Brown ; M. Carlson ; and D. A. Chapman . “Why Constrain Your Mutual Fund Manager?Journal of Financial Economics, 73 (2004), 289321.

E. I Altman . “Financial Ratios, Discriminant Analysis and the Prediction of Corporate Bankruptcy.” Journal of Finance, 23 (1968), 589609.

Y Amihud . “Illiquidity and Stock Returns: Cross-Section and Time-Series Effects.” Journal of Financial Markets, 5 (2002), 3156.

E. Asparouhova ; H. Bessembinder ; and I. Kalcheva . “Liquidity Biases in Asset Pricing Tests.” Journal of Financial Economics, forthcoming (2010).

D. Avramov ; T. Chordia ; and A. Goyal . “Liquidity and Autocorrelations in Individual Stock Returns.” Journal of Finance, 61 (2006), 23652394.

N. Barberis ; A. Shleifer ; and R. Vishny . “A Model of Investor Sentiment.” Journal of Financial Economics, 49 (1998), 307343.

L. C. Bhandari Debt/Equity Ratio and Expected Common Stock Returns: Empirical Evidence.” Journal of Finance, 43 (1988), 507528.

F. Black , and M. Scholes . “The Pricing of Options and Corporate Liabilities.” Journal of Political Economy, 81 (1973), 637654.

M. E. Blume , and R. F. Stambaugh . “Biases in Computed Returns: An Application to the Size Effect.” Journal of Financial Economics, 12 (1983), 387404.

J. Y. Campbell ; S. J. Grossman ; and J. Wang . “Trading Volume and Serial Correlation in Stock Returns.” Quarterly Journal of Economics, 108 (1993), 905939.

J. Y. Campbell ; J. Hilscher ; and J. Szilagyi . “In Search of Distress Risk.” Journal of Finance, 63 (2008), 28992939.

J. S. Conrad ; A. Hameed ; and C. Niden . “Volume and Autocovariances in Short-Horizon Individual Security Returns.” Journal of Finance, 49 (1994), 13051329.

J. Conrad ; K. M. Johnson ; and S. Wahal . “Institutional Trading and Alternative Trading Systems.” Journal of Financial Economics, 70 (2003), 99134.

J. Coval , and E. Stafford . “Asset Fire Sales (and Purchases) in Equity Markets.” Journal of Financial Economics, 86 (2007), 479512.

K. Daniel ; M. Grinblatt ; S. Titman ; and R. Wermers . “Measuring Mutual Fund Performance with Characteristic-Based Benchmarks.” Journal of Finance, 52 (1997), 10351058.

K. Daniel ; D. Hirshleifer ; and A. Subrahmanyam . “Investor Psychology and Security Market Under- and Overreactions.” Journal of Finance, 53 (1998), 18391885.

J. B. De Long ; A. Shleifer ; L. H. Summers ; and R. J. Waldmann . “Positive Feedback Investment Strategies and Destabilizing Rational Speculation.” Journal of Finance, 45 (1990), 379395.

I. D Dichev . “Is the Risk of Bankruptcy a Systematic Risk?Journal of Finance, 53 (1998), 11311147.

E. F. Fama , and K. R. French . “Common Risk Factors in the Returns on Stocks and Bonds.” Journal of Financial Economics, 33 (1993), 356.

L. Garlappi ; T. Shu ; and H. Yan . “Default Risk, Shareholder Advantage, and Stock Returns.” Review of Financial Studies, 21 (2008), 27432778.

T. J. George , and C.-Y. Hwang . “A Resolution of the Distress Risk and Leverage Puzzles in the Cross Section of Stock Returns.” Journal of Financial Economics, forthcoming (2010).

J. M. Griffin ; J. H. Harris ; and S. Topaloglu . “The Dynamics of Institutional and Individual Trading.” Journal of Finance, 58 (2003), 22852320.

J. M. Griffin , and M. L. Lemmon . “Book-to-Market Equity, Distress Risk and Stock Returns.” Journal of Finance, 57 (2002), 23172336.

S. Grossman , and M. H. Miller . “Liquidity and Market Structure.” Journal of Finance, 43 (1988), 617633.

L. P. Hansen , and R. Jagannathan . “Implications of Security Market Data for Models of Dynamic Economies.” Journal of Political Economy, 99 (1991), 225262.

S. A. Hillegeist ; E. K. Keating ; D. P. Cram ; and K. G. Lundstedt . “Assessing the Probability of Bankruptcy.” Review of Accounting Studies, 9 (2004), 534.

D Hirshleifer . “Investor Psychology and Asset Pricing.” Journal of Finance, 56 (2001), 15331597.

R. D. Huang , and H. R. Stoll . “Dealer versus Auction Markets: A Paired Comparison of Execution Costs on NASDAQ and the NYSE.” Journal of Financial Economics, 41 (1996), 313358.

N Jegadeesh . “Evidence of Predictable Behavior of Security Returns.” Journal of Finance, 45 (1990), 881898.

R. Kaniel ; G. Saar ; and S. Titman . “Individual Investor Trading and Stock Returns.” Journal of Finance, 63 (2008), 273310.

D. B. Keim , and A. Madhavan . “Anatomy of the Trading Process: Empirical Evidence on the Behavior of Institutional Traders.” Journal of Financial Economics, 37 (1995), 371398.

B. N Lehman . “Fads, Martingales, and Market Efficiency.” Quarterly Journal of Economics, 105 (1990), 128.

T. S Mech . “Portfolio Return Autocorrelation.” Journal of Financial Economics, 34 (1993), 307344.

R. C Merton . “On the Pricing of Corporate Debt: The Risk Structure of Interest Rates.” Journal of Finance, 29 (1974), 449470.

W. Newey , and K. West . “A Simple Positive Semi-Definite, Heteroskedasticity and Autocorrelation Consistent Covariance Matrix.” Econometrica, 55 (1987), 703708.

J. A Ohlson . “Financial Ratios and the Probabilistic Prediction of Bankruptcy.” Journal of Accounting Research, 18 (1980), 109131.

T Shumway . “Forecasting Bankruptcy More Accurately: A Simple Hazard Model.” Journal of Business, 74 (2001), 101124.

M. Vassalou , and Y. Xing . “Default Risk in Equity Returns.” Journal of Finance, 59 (2004), 831868.

X. F Zhang . “Information Uncertainty and Stock Returns.” Journal of Finance, 61 (2006), 105137.

Recommend this journal

Email your librarian or administrator to recommend adding this journal to your organisation's collection.

Journal of Financial and Quantitative Analysis
  • ISSN: 0022-1090
  • EISSN: 1756-6916
  • URL: /core/journals/journal-of-financial-and-quantitative-analysis
Please enter your name
Please enter a valid email address
Who would you like to send this to? *
×