Two Different Exits: Prediction and Performance of Stocks that are About to Stop Trading

36 Pages Posted: 20 Sep 2021 Last revised: 9 Dec 2022

See all articles by Ting Bai

Ting Bai

University of California, Davis

Jens Hilscher

University of California, Davis

Yitian Xiao

affiliation not provided to SSRN

Date Written: December 8, 2022

Abstract

This paper predicts the two most common stock market exits – mergers and drops – using logit models based on firm-level variables and analyzes the returns of stocks that have high exit probabilities. Such analysis is important for investors given that frequent exits are partly responsible for the large U.S. listing gap (Doidge, Karolyi and Stulz (2017)). High merger probability stocks have positive three-factor alphas and lower-than-average volatility. Firms with high drop probabilities have anomalously negative three-, four-, and five-factor alphas between -1.8\% and -4\% per month. Results are robust to controlling for the effects of skewness, volatility, and turnover on returns.

Keywords: mergers, exits, stock returns, anomalies

JEL Classification: G12

Suggested Citation

Bai, Ting and Hilscher, Jens and Xiao, Yitian, Two Different Exits: Prediction and Performance of Stocks that are About to Stop Trading (December 8, 2022). Available at SSRN: https://ssrn.com/abstract=3925824 or http://dx.doi.org/10.2139/ssrn.3925824

Ting Bai

University of California, Davis ( email )

Davis, CA
United States

Jens Hilscher (Contact Author)

University of California, Davis ( email )

One Shields Avenue
Apt 153
Davis, CA 95616
United States

Yitian Xiao

affiliation not provided to SSRN

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