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Learning about Distress

Christian C. Opp

University of Pennsylvania - The Wharton School

April 8, 2015

I develop an analytically tractable dynamic asset pricing model to study expected returns of financially distressed firms in the presence of learning and investor activism. Learning critically affects distressed stocks' valuations and risk exposures as information about solvency is essential for firm survival in distress. Informational externalities from active investors thus can also have first-order effects on distress risk premia. The presented model can shed light on a variety of empirical regularities related to financial distress, such as distressed firms' apparent stock market underperformance, momentum return dynamics, and negative abnormal returns after private placements of public equity involving active investors.

Number of Pages in PDF File: 48

Keywords: learning, financial distress, distress anomaly, momentum, active investors, PIPEs

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Date posted: November 27, 2012 ; Last revised: April 10, 2015

Suggested Citation

Opp, Christian C., Learning about Distress (April 8, 2015). Available at SSRN: https://ssrn.com/abstract=2181441 or http://dx.doi.org/10.2139/ssrn.2181441

Contact Information

Christian C. Opp (Contact Author)
University of Pennsylvania - The Wharton School ( email )
3641 Locust Walk
Philadelphia, PA 19104-6365
United States
215-573-3186 (Phone)

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References:  11
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