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  • 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:
  • Published online: 01 January 2010

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.

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Journal of Financial and Quantitative Analysis
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