Misvaluation and Return Anomalies in Distress Stocks

47 Pages Posted: 17 Mar 2012

See all articles by Assaf Eisdorfer

Assaf Eisdorfer

University of Connecticut - Department of Finance

Amit Goyal

University of Lausanne; Swiss Finance Institute

Alexei Zhdanov

Pennsylvania State University

Multiple version iconThere are 2 versions of this paper

Date Written: March 15, 2012


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.

Keywords: financial distress, return anomalies, misvaluation

JEL Classification: G12, G13, G33

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: https://ssrn.com/abstract=2023778 or http://dx.doi.org/10.2139/ssrn.2023778

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 )

Batiment Extranef 226
Lausanne, Vaud CH-1015
+41 21 692 3676 (Phone)
+41 21 692 3435 (Fax)

HOME PAGE: http://www.hec.unil.ch/agoyal/

Swiss Finance Institute ( email )

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4

Alexei Zhdanov (Contact Author)

Pennsylvania State University ( email )

University Park
State College, PA 16802
United States

HOME PAGE: http://www.alexeizhdanov.com

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