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Clientele Change, Liquidity Shock, and the Return on Financially Distressed Stocks

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  • Da, Zhi
  • Gao, Pengjie

Abstract

We show that the abnormal returns on high default risk stocks documented by Vassalou and Xing (2004) are driven by short-term return reversals rather than systematic default risk. These abnormal returns occur only during the month after portfolio formation and are concentrated in a small subset of stocks that had recently experienced large negative returns. Empirical evidence supports the view that the short-term return reversal arises from a liquidity shock triggered by a clientele change.

Suggested Citation

  • Da, Zhi & Gao, Pengjie, 2010. "Clientele Change, Liquidity Shock, and the Return on Financially Distressed Stocks," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 45(1), pages 27-48, February.
    • Handle: RePEc:cup:jfinqa:v:45:y:2010:i:01:p:27-48_00
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