This paper asks whether the stocks of bankrupt firms are correctly priced, and explores who trades the stocks of these firms, and why. We show that firms in Chapter 11 are heavily traded by retail investors who are also their main shareholders. We further demonstrate that the stocks of these...

Bankrupt firms' stock displays unique lottery-like characteristics: for only a few cents per stock one can engage in an investment strategy that offers a low probability of huge future reward, and a very high probability of a small loss. Kumar (2009 a) shows that this type of stock is likely to...

This paper investigates why the market fails to incorporate the adverse information conveyed by the going-concern (GC) opinion in a timely manner. Our main conjecture is that the lottery-like features of GC stocks attract a predominantly retail clientele who use those stocks to gamble in the...

This study shows that investor preference for positively skewed payoffs is a common driver of mispricing across a wide range of market anomalies. Specifically, skewness-loving investors overweight overpriced stocks in their portfolios and in doing so contribute to the anomalies. Using a combined...

This study examines the impact of integral emotions on portfolio decisions and asset prices. Using a new dictionary of anxiety- and excitement-related keywords, we measure the emotional state of the market and compute firm-level sensitivity to changes in market-level emotions (i.e., emotion...

We investigate whether gambling-motivated retail trading generates mispricing among firms with extreme negative news. Employing a novel accounting-based measure of failure propensity conveyed by the going-concern (GC) audit opinions, we show that gambling-induced trading in GC firms with...

This paper explores the market response to two apparently similar but in fact very different firm-specific bad-news events: 1) filing a strategic Chapter 11, and 2) filing a financially-motivated Chapter 11. We find that the market is unable to distinguish between the two in both the pre-event,...