Litigation Risk and Stock Return Anomaly

Jun Duanmu, Qiping Huang, Yongjia Li and Lingna Sun

Financial Analysts Journal, 2022, vol. 78, issue 4, 145-162

Abstract: We create a proxy for security litigation risk using a dynamic logistic model and find that low-litigation-risk firms outperform high-litigation-risk firms. The out-of-sample long-short portfolio delivers an annual alpha of over 8%. This anomalous return is mainly driven by long positions in low-litigation-risk firms. The results are not affected by the realization of the lawsuits and are robust after controlling for other well-known anomaly factors. We provide evidence that the litigation-risk anomalous return is driven by investors’ under-reaction to the changes in firms’ litigation risk.

Date: 2022
References: Add references at CitEc
Citations:

Downloads: (external link)
http://hdl.handle.net/10.1080/0015198X.2022.2089008 (text/html)
Access to full text is restricted to subscribers.

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:taf:ufajxx:v:78:y:2022:i:4:p:145-162

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/ufaj20

DOI: 10.1080/0015198X.2022.2089008

Access Statistics for this article

Financial Analysts Journal is currently edited by Maryann Dupes

More articles in Financial Analysts Journal from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().