Anomalies and financial distress

Doron Avramov, Tarun Chordia, Gergana Jostova and Alexander Philipov

Journal of Financial Economics, 2013, vol. 108, issue 1, 139-159

Abstract: 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. In contrast, the value-based strategy derives most of its profitability 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 among high and low credit risk firms in all credit conditions.

Keywords: Asset pricing anomalies; Financial distress; Credit ratings (search for similar items in EconPapers)
JEL-codes: G11 G12 G14 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (98)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:108:y:2013:i:1:p:139-159

DOI: 10.1016/j.jfineco.2012.10.005

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