Misvaluation and Return Anomalies in Distress Stocks
Amit Goyal () and
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Assaf Eisdorfer: University of Connecticut
Alexei Zhdanov: Pennsylvania State University
No 12-12, Swiss Finance Institute Research Paper Series from Swiss Finance Institute
Return anomalies are most pronounced among distressed stocks. We attribute this finding to the role of misvaluation and investors' inability to value distressed stocks correctly. We treat distressed stocks as options and construct a valuation model that explicitly takes into account the value of the option to default (or abandon the firm). We show that anomalies exist only among the subset of distressed stocks classified as misvalued by our model. There is little evidence that more misvalued stocks are harder to arbitrage than less misvalued stocks.
Keywords: Financial Distress; Return Anomalies; Misvaluation (search for similar items in EconPapers)
JEL-codes: G12 G13 G33 (search for similar items in EconPapers)
Pages: 50 pages
New Economics Papers: this item is included in nep-cfn and nep-fmk
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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp1212
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