What drives the distress risk–return puzzle? A perspective on limits of arbitrage
研究发现困境风险与股票收益的负相关关系在套利限制更高的股票中更强，投资者因机构可借股票供应低且套利成本高而难以卖空被错误定价的高困境风险股票，从而解释了困境之谜。
Abstract Empirical research has documented a negative relationship between distress risk and stock returns. This negative risk–return trade‐off, known as the distress puzzle, poses a challenge to asset pricing models. In this study, we provide a new explanation of the distress puzzle by considering the effect of arbitrage asymmetry. We find that the negative distress risk–return relation is stronger in stocks that have higher limits of arbitrage. The investors are virtually unable to short sell mispriced high distress risk stocks due to the low supply of lendable stocks from institutions and that arbitrage is costly. In addition, we show that the limits of arbitrage effect is distinct from liquidity effect in explaining the distress puzzle.