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Two Different Exits: Prediction and Performance of Stocks that are About to Stop Trading

Author

Listed:
  • Ting Bai

    (University of California, Davis, USA)

  • Jens Hilscher

    (University of California, Davis, USA)

  • Yitian Xiao

    (Mingshi Investment, 488 Middle Yincheng Road, Shanghai, China)

Abstract

This paper predicts the two most common stock market exits — mergers and drops — using logit models based on firm-level variables and analyzes the returns of stocks that have high exit probabilities. Such analysis is important for investors given that frequent exits are partly responsible for the large US listing gap (Doidge et al., 2017). High merger probability stocks have positive 3-factor alphas and lower-than-average volatility. Firms with high drop probabilities have anomalously negative 3-, 4-, and 5-factor alphas between −1.8% and −4% per month. Results are robust to controlling for the effects of skewness, volatility, and turnover on returns.

Suggested Citation

  • Ting Bai & Jens Hilscher & Yitian Xiao, 2023. "Two Different Exits: Prediction and Performance of Stocks that are About to Stop Trading," Quarterly Journal of Finance (QJF), World Scientific Publishing Co. Pte. Ltd., vol. 13(01), pages 1-28, March.
    • Handle: RePEc:wsi:qjfxxx:v:13:y:2023:i:01:n:s2010139223500039
    DOI: 10.1142/S2010139223500039
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