Saddled with Attention: Overreaction to Bankruptcy Filings

Tomas Reyes and Nicolas Waissbluth

International Review of Finance, 2019, vol. 19, issue 4, 787-819

Abstract: We analyze the effect of investor attention on stock prices around Chapter 11 bankruptcy filings. We measure investor attention as abnormal search volume from Google, and find that attention‐grabbing companies have more negative abnormal stock returns in the days before and during bankruptcy filings and more positive abnormal returns immediately thereafter. That is, for companies receiving high attention, investors overreact to a bankruptcy filing; for companies receiving low attention, they underreact. This pattern is more pronounced for companies with low institutional ownership and holds after controlling for standard predictors of stock performance during bankruptcy.

Date: 2019
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International Review of Finance is currently edited by Bruce D. Grundy, Naifu Chen, Ming Huang, Takao Kobayashi and Sheridan Titman

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