Anomalies and Financial Distress

45 Pages Posted: 21 Apr 2010 Last revised: 4 Apr 2012

Doron Avramov

Hebrew University of Jerusalem - Jerusalem School of Business Administration

Tarun Chordia

Emory University - Department of Finance

Gergana Jostova

George Washington University - Department of Finance

Alexander Philipov

George Mason University - Finance Area

Multiple version iconThere are 4 versions of this paper

Date Written: April 3, 2012

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, credit risk, financial distress, downgrades

JEL Classification: G14, G12

Suggested Citation

Avramov, Doron and Chordia, Tarun and Jostova, Gergana and Philipov, Alexander, Anomalies and Financial Distress (April 3, 2012). Available at SSRN: https://ssrn.com/abstract=1593728 or http://dx.doi.org/10.2139/ssrn.1593728

Doron Avramov

Hebrew University of Jerusalem - Jerusalem School of Business Administration ( email )

Mount Scopus
Jerusalem, 91905
Israel

HOME PAGE: http://pluto.huji.ac.il/~davramov/

Tarun Chordia

Emory University - Department of Finance ( email )

Atlanta, GA 30322-2710
United States
404-727-1620 (Phone)
404-727-5238 (Fax)

Gergana Jostova (Contact Author)

George Washington University - Department of Finance ( email )

2201 G St NW
Funger Hall, Suite 501
Washington, DC 20052
United States
202-994-7478 (Phone)

HOME PAGE: http://home.gwu.edu/~jostova

Alexander Philipov

George Mason University - Finance Area ( email )

Fairfax, VA 22030
United States

HOME PAGE: http://mason.gmu.edu/~aphilipo

Paper statistics

Downloads
1,324
Rank
10,708
Abstract Views
9,777