Is Market Necessarily More Efficient in Liquid Stocks? Evidence from the Distress Anomaly

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主讲人	Chuan Yang Hwang	简介	<p>We use the distress anomaly as a setting to investigate the relationship between liquidity and market efficiency. We document the counterintuitive result that market is less efficient in liquid stocks. A strategy of taking a long position on stocks in the low distress quintile and shorting stocks in the high distress quintile would earn a Fama-French three-factor adjusted return of 0.84% per month for illiquid stocks, while the same strategy would earn a significantly higher return of 1.86% per month for liquid stocks. While investors&rsquo; preference for the jackpot type of payoffs inherent in high distress stocks alone explains the distress anomaly of illiquid stocks, it cannot not explain the difference of the anomaly between &nbsp; liquid and illiquid stocks. Earnings announcement tests show that the difference in better explained by the pricing errors resulted from favorite-longshot bias of noise traders. Our results support the view that there is greater noise trading in liquid stocks, which not only generates greater pricing errors in the distress stocks but also greater limits to arbitrage as described in Shleifer and Summers (1990) and Shleifer and Vishny (1997).&nbsp;</p>
时间	2017-12-12(Tuesday)16:40-18:00	地点	N302, Econ Building
讲座语言	English	主办单位	WISE&SOE
承办单位		类型	系列讲座
联系人信息		主持人	Kuo Zhang
专题网站		专题
主讲人简介	<p>Chuan Yang Hwang is currently a professor of finance and the director of the PhD program at Nanyang Business School, Nanyang Technological University. Professor Hwang holds a PhD from UCLA. Before joining Nanyang Technological University, he taught at University at California at Irvine, University of Pittsburgh and Hong Kong University of Science and Technology. Professor Hwang has published articles in leading finance journals such as<em> the Journal of Finance, the Review of Financial Studies</em>, and t<em>he Journal of Financial and Quantitative Analysis</em>. His research interests are investment and corporate finance. Some of his research has been featured in business publications such as<em> the Wall Street Journal</em>. Prof. Hwang's areas of expertise are investment and corporate finance. His current research works focus on information risk and distress risk.</p>	期数	金融经济学系列讲座2017年秋季学期第六讲(总第40讲)

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