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Anomalies And Financial Distress
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Book Synopsis Anomalies and Financial Distress by : Doron Avramov
Download or read book Anomalies and Financial Distress written by Doron Avramov and published by . This book was released on 2014 with total page 53 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper explores commonalities across asset-pricing anomalies. In particular, we assess implications of financial distress for the profitability of anomaly-based trading strategies. Strategies based on price momentum, earnings momentum, credit risk, dispersion, idiosyncratic volatility, and capital investments derive their profitability from taking short positions in high credit risk firms that experience deteriorating credit conditions. Such distressed firms are highly illiquid and hard to short sell, which could establish nontrivial hurdles for exploiting anomalies in real time. The value effect emerges from taking long positions in high credit risk firms that survive financial distress and subsequently realize high returns. The accruals anomaly is an exception - it is robust amongst high and low credit risk firms as well as during periods of deteriorating, stable, and improving credit conditions.
Book Synopsis Does Financial Distress Risk Drive the Momentum Anomaly? by : Vineet Agarwal
Download or read book Does Financial Distress Risk Drive the Momentum Anomaly? written by Vineet Agarwal and published by . This book was released on 2007 with total page 40 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Financial Distress, Market Anomalies and Single and Multifactor Asset Pricing Models by : Syed I. Hussain
Download or read book Financial Distress, Market Anomalies and Single and Multifactor Asset Pricing Models written by Syed I. Hussain and published by . This book was released on 2008 with total page 35 pages. Available in PDF, EPUB and Kindle. Book excerpt: Data snooping and the nature of the distress premium are unresolved issues for the Fama and French three-factor model. These are addressed using UK data to create and test the model on portfolios based on market anomalies. We explore the apparent distress premium identified in prior research with particular reference to negative book equity-to-market equity (BE/ME) stocks. Although neglected in the prior research, we argue that these stocks offer new insights into the nature of the distress premium. We conclude that the distress premium is real and the three-factor model is an improvement on CAPM for all portfolios tested including the negative (BE/ME) portfolio. Unlike other distressed portfolios there is no compensation with high abnormal returns for this portfolio.
Book Synopsis Financial Distress, Asset Pricing Models and Market Anomalies by : Syed Iqbal Hussain
Download or read book Financial Distress, Asset Pricing Models and Market Anomalies written by Syed Iqbal Hussain and published by . This book was released on 2002 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Financial Distress, Single and Multifactor Tests and Comparisons of Asset Pricing Anomalies by : Iki Hussain
Download or read book Financial Distress, Single and Multifactor Tests and Comparisons of Asset Pricing Anomalies written by Iki Hussain and published by . This book was released on 2002 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Does the Financial Distress Factor Drive the Momentum Anomaly? by : Vineet Agarwal
Download or read book Does the Financial Distress Factor Drive the Momentum Anomaly? written by Vineet Agarwal and published by . This book was released on 2008 with total page 37 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper brings together the evidence on two asset pricing anomalies - continuation of prior returns (momentum) and the market pricing of distressed firms. Our empirical analysis demonstrates both these effects are driven by market underreaction to bad news, and that momentum is largely subsumed by our distress risk factor. We also extend the extant literature on the market pricing of distress risk by considering this conditional on market state and GDP growth rate, and find little evidence that financial distress risk is a priced risk factor.
Book Synopsis Essays on Financial Anomalies by : Ming Gu
Download or read book Essays on Financial Anomalies written by Ming Gu and published by . This book was released on 2012 with total page 105 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation studies two pervasive financial anomalies: price momentum and accrual anomaly. The first essay establishes a robust link between momentum and accruals (the difference between accounting earnings and cash flow). I find that momentum profitability is statistically significant and economically large only among firms with high accruals. The cross-sectional characteristics of momentum previously documented do not subsume the effect of accruals on momentum profits, and the effect also holds in different market states. To understand the source of momentum, I analyze the predictive power of accruals for stock returns based on two hypotheses: earnings manipulation and earnings overestimation. I find that loser stocks with high accruals experience significant decreases in industry-adjusted sales growth and the largest amount of income-decreasing special items in subsequent years. Most of momentum profitability among high-accrual firms is attributable to the high discretionary accrual group. My findings indicate that, primarily due to the effect of earnings manipulation, the downward payoff of loser stocks with high accruals largely drives the accrual-based momentum profit. The second essay investigates the relationship between financial distress and accrual anomaly. I investigate whether the continued existence of the accrual anomaly is due to the failure to account for the compensation for distress risk. I find a U-shape pattern of distress risks across accrual portfolios. The accrual profit is mostly concentrated in firms with high distress, suggesting that the abnormal returns to the accrual trading strategy may result from the high distress-risk exposures. Market frictions such as idiosyncratic stock return volatility, illiquidity, and short-sale constraints do not generate the accrual anomaly, but they prevent stock prices from adjusting once financial distress triggers the abnormal returns to the accrual trading strategy.
Book Synopsis Financial Distress, the Idiosyncratic Volatility Puzzle and Expected Returns by : Qingyi (Freda) Song Drechsler
Download or read book Financial Distress, the Idiosyncratic Volatility Puzzle and Expected Returns written by Qingyi (Freda) Song Drechsler and published by . This book was released on 2009 with total page 47 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper explores the asset pricing impact of financial distress and idiosyncratic volatility on cross-sectional stock returns. We show that the puzzling negative correlation between idiosyncratic volatility and return is a manifestation of financial distress. Using daily and monthly return data from 1971 to 2006, we show that while the volatility spread is -1.68% for the most distressed stocks, it is actually positive and significant at 0.61% per month for the least distressed ones. This indicates that financial distress has a more fundamental impact on the cross-sectional returns than idiosyncratic volatility. As volatility is one of the inputs in the measurement of distress, we address the potential endogenous relationship between distress and idiosyncratic volatility using various robustness checks. Moreover, in a horse-race comparison under the Fama-MacBeth firm-level regression set up, financial distress takes away the explanatory power of idiosyncratic volatility on cross-sectional stock returns. Interaction of financial distress with other asset-pricing anomalies, including momentum and value effects, is also explored. It is shown that the momentum effect is mostly driven by the group of most distressed stocks. And similarly, the value effect is the strongest among this group of stocks.
Book Synopsis An Explanation of Financial Market Anomalies by : Chih-Wen Yang
Download or read book An Explanation of Financial Market Anomalies written by Chih-Wen Yang and published by . This book was released on 2017 with total page 16 pages. Available in PDF, EPUB and Kindle. Book excerpt: At present, there are two main explanations for market anomalies, namely, risk-based and behavioral. While the risk-based perspective states that abnormal returns arise owing to investors undertaking financial risks, the behavioral perspective states that abnormal returns arise owing to investor psychology. However, we believe that the source of abnormal returns originates from financing constraints. Viewed from a different perspective, financial constraints arise from information asymmetry, which in turn leads to an incorrect assessment of behavior. Moreover, the risk of financial distress also has a correlation with financial constraint. The link between the two provides another common explanation for market anomalies. This study utilizes publicly disclosed stock data of the Taiwan stock exchange in order to prove the above argument. Furthermore, apart from the commonly observed explanations of under- and overreaction, cash dividends can also logically explain the extent of under- and overreaction, which plays a critical role in determining the expected returns of an asset portfolio.
Book Synopsis The Handbook of Equity Market Anomalies by : Leonard Zacks
Download or read book The Handbook of Equity Market Anomalies written by Leonard Zacks and published by John Wiley & Sons. This book was released on 2011-08-24 with total page 352 pages. Available in PDF, EPUB and Kindle. Book excerpt: Investment pioneer Len Zacks presents the latest academic research on how to beat the market using equity anomalies The Handbook of Equity Market Anomalies organizes and summarizes research carried out by hundreds of finance and accounting professors over the last twenty years to identify and measure equity market inefficiencies and provides self-directed individual investors with a framework for incorporating the results of this research into their own investment processes. Edited by Len Zacks, CEO of Zacks Investment Research, and written by leading professors who have performed groundbreaking research on specific anomalies, this book succinctly summarizes the most important anomalies that savvy investors have used for decades to beat the market. Some of the anomalies addressed include the accrual anomaly, net stock anomalies, fundamental anomalies, estimate revisions, changes in and levels of broker recommendations, earnings-per-share surprises, insider trading, price momentum and technical analysis, value and size anomalies, and several seasonal anomalies. This reliable resource also provides insights on how to best use the various anomalies in both market neutral and in long investor portfolios. A treasure trove of investment research and wisdom, the book will save you literally thousands of hours by distilling the essence of twenty years of academic research into eleven clear chapters and providing the framework and conviction to develop market-beating strategies. Strips the academic jargon from the research and highlights the actual returns generated by the anomalies, and documented in the academic literature Provides a theoretical framework within which to understand the concepts of risk adjusted returns and market inefficiencies Anomalies are selected by Len Zacks, a pioneer in the field of investing As the founder of Zacks Investment Research, Len Zacks pioneered the concept of the earnings-per-share surprise in 1982 and developed the Zacks Rank, one of the first anomaly-based stock selection tools. Today, his firm manages U.S. equities for individual and institutional investors and provides investment software and investment data to all types of investors. Now, with his new book, he shows you what it takes to build a quant process to outperform an index based on academically documented market inefficiencies and anomalies.
Book Synopsis Costly External Finance by : Dongmei Li
Download or read book Costly External Finance written by Dongmei Li and published by . This book was released on 2008 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Abstract: In a frictionless world, investment is perfectly elastic to changes in the discount rate. With financial frictions, investment is less elastic, meaning that a given magnitude of change in investment is associated with a higher magnitude of change in the discount rate. Equivalently, investment is a more powerful predictor of future stock returns. Consistent with this prediction, we document that the asset growth, external finance, and accrual anomalies in the cross-section of stock returns are much stronger in financially more constrained firms than in financially less constrained firms. Further tests show that this effect of financial constraints is distinct from the effect of financial distress and the effect of limits of arbitrage on the magnitude of the anomalies.
Book Synopsis Costly External Equity by : Dongmei Li
Download or read book Costly External Equity written by Dongmei Li and published by . This book was released on 2008 with total page 41 pages. Available in PDF, EPUB and Kindle. Book excerpt: We document that the value, net stock issues, investment, and asset growth anomalies tend to be stronger in financially more constrained firms than in less constrained firms. This effect of financial constraints is distinct from that of financial distress on anomalies. Intuitively, costly external finance makes marginal costs of investment more sensitive to investment in more constrained firms, giving rise to a stronger negative correlation between investment and the discount rate.
Download or read book Digesting Anomalies written by Kewei Hou and published by . This book was released on 2012 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Motivated from investment-based asset pricing, we propose a new factor model consisting of the market factor, a size factor, an investment factor, and a return on equity factor. The new factor model outperforms the Carhart four-factor model in pricing portfolios formed on earnings surprise, idiosyncratic volatility, financial distress, net stock issues, composite issuance, as well as on investment and return on equity. The new model performs similarly as the Carhart model in pricing portfolios formed on size and momentum, abnormal corporate investment, as well as on size and book-to-market, but underperforms in pricing the total accrual deciles. The new model's performance, combined with its clear economic intuition, suggests that it can be used as a new workhorse model for academic research and investment management practice.
Book Synopsis The 2007-2008 Financial Crisis and Accrual Anomaly by : Ye Wang
Download or read book The 2007-2008 Financial Crisis and Accrual Anomaly written by Ye Wang and published by . This book was released on 2015 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper investigates how the 2008 financial crisis affects the accrual anomaly documented by Sloan (1996). I find that the accrual anomaly increases during the financial crisis period and the increase in accrual anomaly does not differ between firms relying and not relying on external financing. Additional analysis shows that arbitrage risk and transaction costs could have contributed to the increase in accrual anomaly during the financial crisis period.
Book Synopsis Portfolio Selection by : Harry Markowitz
Download or read book Portfolio Selection written by Harry Markowitz and published by Yale University Press. This book was released on 2008-10-01 with total page 369 pages. Available in PDF, EPUB and Kindle. Book excerpt: Embracing finance, economics, operations research, and computers, this book applies modern techniques of analysis and computation to find combinations of securities that best meet the needs of private or institutional investors.
Book Synopsis Financial Crises Explanations, Types, and Implications by : Mr.Stijn Claessens
Download or read book Financial Crises Explanations, Types, and Implications written by Mr.Stijn Claessens and published by International Monetary Fund. This book was released on 2013-01-30 with total page 66 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper reviews the literature on financial crises focusing on three specific aspects. First, what are the main factors explaining financial crises? Since many theories on the sources of financial crises highlight the importance of sharp fluctuations in asset and credit markets, the paper briefly reviews theoretical and empirical studies on developments in these markets around financial crises. Second, what are the major types of financial crises? The paper focuses on the main theoretical and empirical explanations of four types of financial crises—currency crises, sudden stops, debt crises, and banking crises—and presents a survey of the literature that attempts to identify these episodes. Third, what are the real and financial sector implications of crises? The paper briefly reviews the short- and medium-run implications of crises for the real economy and financial sector. It concludes with a summary of the main lessons from the literature and future research directions.
Book Synopsis Efficiency and Anomalies in Stock Markets by : Wing-Keung Wong
Download or read book Efficiency and Anomalies in Stock Markets written by Wing-Keung Wong and published by Mdpi AG. This book was released on 2022-02-17 with total page 232 pages. Available in PDF, EPUB and Kindle. Book excerpt: The Efficient Market Hypothesis believes that it is impossible for an investor to outperform the market because all available information is already built into stock prices. However, some anomalies could persist in stock markets while some other anomalies could appear, disappear and re-appear again without any warning. A Special Issue on "Efficiency and Anomalies in Stock Markets" will be devoted to advancements in the theoretical development of market efficiency and anomaly in the Stock Market, as well as applications in Stock Market efficiency and anomalies.
