Industry Distress Anomaly

Hui Chen, Winston Dou, Hongye Guo and Yan Ji

No 35513, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We document a robust industry-level distress anomaly in which more distressed industries earn significantly lower expected equity returns. The anomaly is distinct from the firm-level distress anomaly (Campbell, Hilscher and Szilagyi, 2008). It remains significant after controlling for firm-level distress but disappears in placebo industries formed by randomly reshuffling firms across actual industries. Both theoretically and empirically, we show that competition-distress feedback amplifies the exposure of industry profit margins and equity returns to discount-rate shocks. Industries with greater idiosyncratic left-tail risk are more distressed but exhibit weaker competition-distress feedback. This effect reduces their exposure to discount-rate shocks and thus lowers their expected equity returns.

JEL-codes: C73 G12 L13 O33 (search for similar items in EconPapers)
Date: 2026-07
Note: AP CF EFG IO
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