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Institutional preferences, demand shocks and the distress anomaly
Ye, Q. Liu, J.
Ye, Q.
Liu, J.
Publication Date
2019-01
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© 2019 Elsevier. Reproduced in accordance with the publisher's self-archiving policy. This manuscript version is made available under the CC-BY-NC-ND 4.0 license.
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Yes
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openAccess
Accepted for publication
25/04/2018
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Abstract
Our paper examines the distress anomaly on the Chinese stock markets. We show that the anomaly disappears after controlling for institutional ownership. We propose two hypotheses. The growing scale of institutional investors and changes in institutional preferences can generate greater demand shocks for stocks with low distress risk than those with high distress risk, causing the former to outperform the latter. Consistent with our hypotheses, the growth of institutions explains the anomaly when the institutional market share increases rapidly. We also show that institutional preferences for stocks with low distress risk have significantly increased over time and changes in preferences also explain the anomaly. Finally, momentum trading and gradual incorporation of distress information cannot account for the anomaly.
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Accepted manuscript
Citation
Ye Q, Wu Y and Liu J (2019) Institutional preferences, demand shocks and the distress anomaly. The British Accounting Review. 51(1): 72-91.
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Article