The Orphan Equity Market: Recent Evidence

9 Pages Posted: 12 Nov 2015

See all articles by Omid Sabbaghi

Omid Sabbaghi

University of Detroit Mercy

J. Lupton

BBVA Compass

Multiple version iconThere are 2 versions of this paper

Date Written: November 5, 2015


This study examines the informational efficiency of the orphan equity market during the 2000 to 2010 period. We identify firms emerging from Chapter 11 via the LoPucki Bankruptcy Research Database and find that the market is not surprised by their equity return performance. Using different tests, we provide support for the presence of informational efficiency in this market. In addition, we find that while orphan equities are associated with positive returns in the 150 days following emergence, they are poor investments in the long-run. Conducting cross-sectional regressions, we find that the expected return, as proxied by an asset pricing model, best explains the cross-sectional variation in realized returns in the long run. In the short run, a higher post-emergence price on the first day of trading is associated with lower realized returns.

Suggested Citation

Sabbaghi, Omid and Lupton, J., The Orphan Equity Market: Recent Evidence (November 5, 2015). Journal of Applied Finance (Formerly Financial Practice and Education), Vol. 23, No. 1, 2013, Available at SSRN:

Omid Sabbaghi (Contact Author)

University of Detroit Mercy ( email )

4001 W. McNichols Road
Detroit, MI 48221
United States

J. Lupton

BBVA Compass ( email )

United States

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