Delisting Returns and Their Effect on Accounting-Based Market Anomalies
Posted: 25 Jan 2007 Last revised: 13 Jan 2009
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