Death and jackpot: Why do individual investors hold overpriced stocks?

Jennifer Conrad, Nishad Kapadia and Yuhang Xing

Journal of Financial Economics, 2014, vol. 113, issue 3, 455-475

Abstract: Campbell, Hilscher, and Szilagyi (2008) show that firms with a high probability of default have abnormally low average future returns. We show that firms with a high potential for default (death) also tend to have a relatively high probability of extremely large (jackpot) payoffs. Consistent with an investor preference for skewed, lottery-like payoffs, stocks with high predicted probabilities for jackpot returns earn abnormally low average returns. Stocks with high death or jackpot probabilities have relatively low institutional ownership and the jackpot effect we find is much stronger in stocks with high limits to arbitrage.

Keywords: Distress risk; Skewness; Stock returns; Anomalies (search for similar items in EconPapers)
JEL-codes: G11 G12 G32 G33 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (74)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0304405X14000609
Full text for ScienceDirect subscribers only

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:eee:jfinec:v:113:y:2014:i:3:p:455-475

DOI: 10.1016/j.jfineco.2014.04.001

Access Statistics for this article

Journal of Financial Economics is currently edited by G. William Schwert

More articles in Journal of Financial Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().