Delisting Returns and Their Effect on Accounting-Based Market Anomalies
Journal of Accounting and Economics, Vol. 43, pp. 341-368, 2007
46 Pages Posted: 7 Dec 2006 Last revised: 29 Sep 2009
Date Written: November 27, 2006
We show that tests of market efficiency are sensitive to the inclusion of delisting firm-years. When included, trading strategy returns based on anomaly variables can increase (for strategies based on earnings, cash flows and the book-to-market ratio) or decrease (for a strategy based on accruals). This is due to the disproportionate number of delisting firm-years in the lowest decile of these variables. Delisting firm-years are most often excluded because the researcher does not correctly incorporate delisting returns, because delisting return data are missing or because other research design choices implicitly exclude them.
Keywords: Delisting Returns, Anomalies, Market Efficiency, Accrual Anomaly, Trading Strategy
JEL Classification: G14, M41, G33, G34
Suggested Citation: Suggested Citation