1. Global Relation between Financial Distress and Equity Returns.
- Author
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Pengjie Gao, Parsons, Christopher A., and Jianfeng Shen
- Subjects
STOCKS (Finance) ,FINANCIAL performance ,CREDIT risk ,DEFAULT (Finance) ,DISTRESSED securities - Abstract
This study explores the distress risk anomaly--the tendency for stocks with high credit risk to perform poorly--among 38 countries over two decades. We find a strongly negative relationship between default probabilities and equity returns concentrated among lowcapitalization stocks in developed countries in North America and Europe. Although risk-based explanations provide a poor account of these patterns, several pieces of evidence point to a behavioral interpretation, suggesting that stocks of firms in financial distress are temporarily overpriced. [ABSTRACT FROM AUTHOR]
- Published
- 2018
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