Stock Returns and Financial Distress Risk: Evidence from the Asian-Pacific Markets

Li, Hung Chi; Lai, Syouching; Conover, James A.; Wu, Frederick H.; Li, Bin

doi:10.1108/s0196-382120170000033007

Cited by 4 publications

(6 citation statements)

References 26 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…The BM of Quintile 1 portfolio, consisted of the most distressed firms, is the lowest besides NBE portfolio, as found in Zaretzky and Zumwalt (2007). Higher returns by distressed portfolios are less likely from the value effect, and BM does not fully capture a distress premium (Li et al, 2018). This result contradicts French (1995, 1996), who argue a high BM indicates financial distress and that the market demands premiums for bearing increased risk.…”

Section: Resultsmentioning

confidence: 73%

“…Unlike Anginer and Yildizham (2018), these results reveal the existence of distress premiums in the Thai market even after controlling the well-documented factors. Default risk is a significant factor that may affect asset pricing in emerging market (Li et al 2018). The return premium of NBE portfolio diminishes after factoring Fama-French (1993) and Carhart (1997) premium.…”

Section: Resultsmentioning

confidence: 99%

“…Distress anomaly -the tendency for distressed stocks to perform poorly -is found in the developed market (Gao, Parsons, and Shen, 2018). On the contrary, the distress risk factor demonstrates significant explanatory power in an asset-pricing model in Asian markets (Li, Lai, Conover, Wu, and Li, 2018). This paper presents evidence that investors demand higher returns from distress firms in the emerging market where fragile financial structure, a high rate of economic growth, and socio-political instability are evident (Spulbar, Ejaz, Birau, and Trivedi, 2019).…”

Section: Introductionmentioning

confidence: 82%

“…Low returns on stocks with high bankruptcy risk are found in the markets with strong takeover legislation, fewer arbitrage opportunities, and availability of transparent information. Li et al (2018) improve the explanatory power of Fama-French (1993) three-factor model by adding a distress risk factor in the Asia-Pacific markets. The distress risk factor is measured with Ohlson's (1980) O-score.…”

Section: Literature Reviewmentioning

confidence: 99%

See 3 more Smart Citations

Return Premium of Financial Distress and Negative Book Value: Emerging Market Case

Kakinuma¹

2020

JAFEB

View full text Add to dashboard Cite

The purpose of this paper is to examine a financial distress premium in the emerging market. A risk-return trade-off of negative book equity (NBE) and distress firms is empirically analyzed using data from the Stock Exchange of Thailand. This research employs Ohlson's (1980) bankruptcy model as a measurement of distress risk. The results indicate that distress firms outperform solvent firms in the Thai market and deny distress anomaly often found in the developed market. Fama-Frech (1993) three-factor model and Carhart (1997) four-factor model verify the existence of a distress premium in the Thai capital market. Risk-seeking investors demand greater compensation for bearing risks of distress firms' going concern. This paper provides fresh evidence that default risk is a significant explanatory factor in pricing stocks in the emerging market. Also, this study sheds light on the role of NBE firms in asset pricing. Most studies eliminate NBE firms from their sample. However, NBE firms yield superior average cross-sectional returns, albeit with higher volatility. Investors are rewarded with distress risks associated with NBE firms. The outperformance of NBE firms is statistically significant when compared to the overall market. The NBE premium disappears when factoring size, value, and momentum in time-series analysis.

show abstract

Section: Resultsmentioning

confidence: 73%

Section: Resultsmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 82%

Section: Literature Reviewmentioning

confidence: 99%

See 2 more Smart Citations

Return Premium of Financial Distress and Negative Book Value: Emerging Market Case

Kakinuma¹

2020

JAFEB

View full text Add to dashboard Cite

show abstract

“…For example, Gao et al [36] investigated the significance of book-tomarket, size, and momentum factors in capturing the financial distress risks of the stock market in China. Lai et al [37] explained stock returns in the stock markets of Australia, ailand, Singapore, Malaysia, Korea, Indonesia, and Hong Kong, finding that the four-factor financial crisis risk asset pricing model has received extensive empirical support in these markets. Eisdorfer et al [38] studied several potential drivers of stock returns for distressed companies in 34 different countries and documented the exclusive risk anomalies in developed countries.…”

Section: Literature Reviewmentioning

confidence: 99%

Stock Market Temporal Complex Networks Construction, Robustness Analysis, and Systematic Risk Identification: A Case of CSI 300 Index

Wan

Zhang

et al. 2020

Complexity

View full text Add to dashboard Cite

The Chinese stock 300 index (CSI 300) is widely accepted as an overall reflection of the general movements and trends of the Chinese A-share markets. Among the methodologies used in stock market research, the complex network as the extension of graph theory presents an edged tool for analyzing internal structure and dynamic involutions. So, the stock data of the CSI 300 were chosen and divided into two time series, prepared for analysis via network theory. After stationary test and coefficients calculated for daily amplitudes of stock, two “year-round” complex networks were constructed, respectively. Furthermore, the network indexes, including out degree centrality, in degree centrality, and betweenness centrality, were analyzed by taking negative correlations among stocks into account. The first 20 stocks in the market networks, termed “major players,” “gatekeeper,” and “vulnerable players,” were explored. On this basis, temporal networks were constructed and the algorithm to test robustness was designed. In addition, quantitative indexes of robustness and evaluation standards of network robustness were introduced and the systematic risks of the stock market were analyzed. This paper enriches the theory on temporal network robustness and provides an effective tool to prevent systematic stock market risks.

show abstract

In search of distress risk in China's stock market

Gao

Wang

2019

Global Finance Journal

View full text Add to dashboard Cite

Stock Returns and Financial Distress Risk: Evidence from the Asian-Pacific Markets

Cited by 4 publications

References 26 publications

Return Premium of Financial Distress and Negative Book Value: Emerging Market Case

Return Premium of Financial Distress and Negative Book Value: Emerging Market Case

Stock Market Temporal Complex Networks Construction, Robustness Analysis, and Systematic Risk Identification: A Case of CSI 300 Index

In search of distress risk in China's stock market

Contact Info

Product

Resources

About