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Saddled with Attention: Overreaction to Bankruptcy Filings

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  • Tomas Reyes
  • Nicolas Waissbluth

Abstract

We analyze the effect of investor attention on stock prices around Chapter 11 bankruptcy filings. We measure investor attention as abnormal search volume from Google, and find that attention‐grabbing companies have more negative abnormal stock returns in the days before and during bankruptcy filings and more positive abnormal returns immediately thereafter. That is, for companies receiving high attention, investors overreact to a bankruptcy filing; for companies receiving low attention, they underreact. This pattern is more pronounced for companies with low institutional ownership and holds after controlling for standard predictors of stock performance during bankruptcy.

Suggested Citation

  • Tomas Reyes & Nicolas Waissbluth, 2019. "Saddled with Attention: Overreaction to Bankruptcy Filings," International Review of Finance, International Review of Finance Ltd., vol. 19(4), pages 787-819, December.
    • Handle: RePEc:bla:irvfin:v:19:y:2019:i:4:p:787-819
    DOI: 10.1111/irfi.12199
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    Cited by:

    1. Durand, Robert B. & Patterson, Fernando M. & Shank, Corey A., 2021. "Behavioral biases in the NFL gambling market: Overreaction to news and the recency bias," Journal of Behavioral and Experimental Finance, Elsevier, vol. 31(C).

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