Financial distress and idiosyncratic volatility: An empirical investigation

Abstract

We investigate the link between distress and idiosyncratic volatility. Specifically, we examine the twin puzzles of anomalously low returns for high idiosyncratic volatility stocks and high distress risk stocks, documented by Ang et al. (2006) and Campbell et al. (2008), respectively. We document that these puzzles are empirically connected, and can be explained by a simple, theoretical, single-beta CAPM model.

Does Financial Integration Reduce Output Volatility? New Evidence from Cross‐Country Data

“…integration has reduced the output volatility more in the case of developed countries as compared to developing countries. Our results support the findings of Kose et al (2003) and Chen and Wang (2009). Kose et al (2003) found that output volatility has declined in the 1990s as compared to previous periods, and Chen and Wang (2009) demonstrated that capital outflows reduced output and consumption volatility.…”

“…First, financial integration measured based on both volume and equity has reduced output volatility for aggregate panel and panel based on income category (developed and developing countries). This result supports the findings of Kose et al (2003) and Chen and Wang (2009). Second, however, volume-based financial integration measurement has reduced the output volatility in all the regions except for Asia.…”

“…Similarly, Easterly et al (2001), Denizer et al (2002) and DaSilva (2002) find that more sophisticated financial systems are associated with lower volatility. Chen and Wang (2009) argue that capital outflows reduce output and consumption volatility significantly. Finally, a third group of study by Razin and Rose (1994), Kose et al (2003), Kari (2004) and Buch et al (2005) investigate the link between financial integration and output volatility and they find that there is no significant observed relationship between financial integration and macroeconomic volatility.…”

Which Characteristics Predict the Survival of Insolvent Firms? An SME Reorganization Prediction Model

“…However, market variables provide significantly more information about the firm's probability of bankruptcy than any accounting measures (Hillegeist et al. ), so the notion of market efficiency is supported as the most effective tool for forecasting bankruptcy (Chava and Jarrow ; Chen, Chollete, and Ray ; Xu and Zhan ). In some instances, studies on distressed firms are increased due to discrepancies in standard accounting criteria (Beaver, McNichols, and Rhie ).…”

REIT Stock Market Volatility and Expected Returns

“…Fifth, Chen et al . () argue that a firm with more volatile equity may experience an option effect, as it is more likely to reach the boundary condition for default. Lastly, in Barberis et al .…”