Abstract

http://ssrn.com/abstract=2023778
 
 

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Misvaluation and Return Anomalies in Distress Stocks


Assaf Eisdorfer


University of Connecticut - Department of Finance

Amit Goyal


University of Lausanne; Swiss Finance Institute

Alexei Zhdanov


University of Lausanne - Institute of Banking and Finance (IBF); Swiss Finance Institute

March 15, 2012

AFA 2013 San Diego Meetings Paper

Abstract:     
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 rm). We show that anomalies exist only among the subset of distressed stocks classi fied as misvalued by our model. There is little evidence that more misvalued stocks are harder to arbitrage than less misvalued stocks.

Number of Pages in PDF File: 47

Keywords: financial distress, return anomalies, misvaluation

JEL Classification: G12, G13, G33

working papers series





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Date posted: March 17, 2012  

Suggested Citation

Eisdorfer, Assaf and Goyal, Amit and Zhdanov, Alexei, Misvaluation and Return Anomalies in Distress Stocks (March 15, 2012). AFA 2013 San Diego Meetings Paper. Available at SSRN: http://ssrn.com/abstract=2023778 or http://dx.doi.org/10.2139/ssrn.2023778

Contact Information

Assaf Eisdorfer
University of Connecticut - Department of Finance ( email )
School of Business
2100 Hillside Road
Storrs, CT 06269
United States
Amit Goyal
University of Lausanne ( email )
Lausanne, CH-1015
Switzerland
Swiss Finance Institute ( email )
c/o University of Geneve
40, Bd du Pont-d'Arve
1211 Geneva, CH-6900
Switzerland
Alexei Zhdanov (Contact Author)
University of Lausanne - Institute of Banking and Finance (IBF) ( email )
CH-1015 Lausanne
Switzerland
Swiss Finance Institute
c/o University of Geneve
40, Bd du Pont-d'Arve
1211 Geneva, CH-6900
Switzerland
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