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Does Financial Distress Risk Drive the Momentum Anomaly?

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  • Vineet Agarwal
  • Richard Taffler
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    Abstract

    "This paper brings together the evidence on two asset pricing anomalies-continuation of prior returns (momentum) and the market mispricing of distressed firms-using UK data. Our analysis demonstrates both these effects are driven by market underreaction to financial distress risk. In particular, we find momentum is proxying for distress risk, and is largely subsumed by our distress risk factor. We also find, as with US studies, no evidence that size and book-to-market (B/M) effects in stock returns are linked to financial distress". Copyright (c) 2008 Financial Management Association International..

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    Bibliographic Info

    Article provided by Financial Management Association International in its journal Financial Management.

    Volume (Year): 37 (2008)
    Issue (Month): 3 (09)
    Pages: 461-484

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    Handle: RePEc:bla:finmgt:v:37:y:2008:i:3:p:461-484

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    Cited by:
    1. Blitz, David & Huij, Joop & Martens, Martin, 2011. "Residual momentum," Journal of Empirical Finance, Elsevier, vol. 18(3), pages 506-521, June.
    2. Huang, Alex YiHou, 2012. "Asymmetric dynamics of stock price continuation," Journal of Banking & Finance, Elsevier, vol. 36(6), pages 1839-1855.
    3. Bauer, Julian & Agarwal, Vineet, 2014. "Are hazard models superior to traditional bankruptcy prediction approaches? A comprehensive test," Journal of Banking & Finance, Elsevier, vol. 40(C), pages 432-442.

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