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

  • Zhi Da (a1) and Pengjie Gao (a2)
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.

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Journal of Financial and Quantitative Analysis
  • ISSN: 0022-1090
  • EISSN: 1756-6916
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