Operational risk and equity prices

Michael Shafer and Yildiray Yildirim

Finance Research Letters, 2013, vol. 10, issue 4, 157-168

Abstract: We use an empirical model to categorize firms into portfolios based on operational risk. Using these portfolios, we show that a strategy of buying firms in the highest decile of operational risk and shorting firms in the lowest decile of operational risk earned a positive but insignificant risk-adjusted average return of 0.72% per month from 1990 to 2000. However, from 2001 to 2010, the same strategy earned a significantly negative risk-adjusted average return of −1.50% per month. This change occurred during a time characterized by an increasing number of high profile operational losses and regulatory changes surrounding operational risk.

Keywords: G10; G12; G30; Operational risk; Stock returns (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:10:y:2013:i:4:p:157-168

DOI: 10.1016/j.frl.2013.05.001

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