Does gradual diffusion of information really matters: The bankruptcy case

Luís Miguel Serra Coelho ()
Additional contact information
Luís Miguel Serra Coelho: School of Economics - University of the Algarve and CEFAGE

CEFAGE-UE Working Papers from University of Evora, CEFAGE-UE (Portugal)

Abstract: This paper tests to what extent the Hong and Stein (1999) model explains the stock price performance of firms filing for Chapter 11 bankruptcy. In line with the modelÂ’s main prediction, I find that the market severely misprices (correctly prices) the bankrupt firms for which information is likely to diffuse slowly (rapidly) across investors. My key finding is robust to a range of alternative methods for adjusting for risk and different periods for computing the abnormal stock returns. My innovative framework provides an acid test of the predictive ability of the Hong and Stein (1999) model, with my results suggesting that it offers important insight into the workings of financial markets, even in the very extreme setting I consider.

JEL-codes: G14 G33 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2011
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://api.cefage.uevora.pt/assets/64bbb5cf-c977-4825-bb83-ccd7676fe1a9 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cfe:wpcefa:2011_12

Access Statistics for this paper

More papers in CEFAGE-UE Working Papers from University of Evora, CEFAGE-UE (Portugal) Contact information at EDIRC.
Bibliographic data for series maintained by Angela Pacheco ().