Distressed Stocks in Distressed Times
研究了困境股票在不同市场状态下的风险收益关系，发现市场下跌时其贝塔值上升，导致做多健康股做空困境股的策略在市场反弹时遭受重大损失，管理该风险可显著改善夏普比率。
We partially explain the well-documented distress anomaly by studying the risk/return relation of distressed stocks across market states. We show that the anomaly does not hold in market downturns. The asset beta and financial leverage of distressed stocks rise significantly during bear markets, resulting in a dramatic increase in their equity beta. Hence, a long/short healthy-minus-distressed trading strategy leads to significant losses when the market rebounds. Managing this risk mitigates the severe losses of financial distress strategies and significantly improves their Sharpe ratios. Our results remain strongly significant controlling for the momentum effect and are robust to various estimation procedures. This paper was accepted by Tyler Shumway, finance.