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,...

Between June 2005 and October 2007, when it peaked, the Chinese stockmarket went up five-fold; it then went into freefall losing 70% of its value over the following year. Such a market price trajectory represents that of a classic stockmarket bubble. This paper seeks to explain what was going on...

This paper sets out to explore if standard psychoanalytic thinking based on clinical experience can illuminate instability in financial markets and its widespread human consequences. Buying, holding or selling financial assets in conditions of inherent uncertainty and ambiguity, it is argued,...

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 brings together the evidence on two asset pricing anomalies - continuation of prior returns (momentum) and the market pricing of distressed firms. Our empirical analysis demonstrates both these effects are driven by market underreaction to bad news, and that momentum is largely...

Recently developed corporate bankruptcy prediction models adopt a contingent-claims valuation approach. However, despite their theoretical appeal, tests of their performance compared with traditional simple accounting-ratio-based approaches are limited in the literature. We find the two...

We explore the medium-term market reaction to going-concern modified audit opinions and their withdrawal for a large sample of firms from 1994 to 2002. Results show asymmetric market response to these accounting system disclosures. The market underreacts to going-concern opinions, resulting in a...

We test the predictions of the three main behavioral finance theories of market under- and overreaction using out-of-sample data conditional on the nature of the news using the going-concern audit opinion (bad news event) and its withdrawal (good news event). We find strong support for the...

We explore the differential market reaction to the unambiguous bad news and good news signals provided by the going-concern audit opinion and its withdrawal for 845 firms from 1994 to 2002. Results show asymmetric market response to these news events. The market underreacts to such bad news...

We investigate the stock price reaction to UK going-concern audit report disclosures in the calendar year subsequent to publication. Over this period our firm population underperforms by between 24% and 31% depending on the benchmark adopted. This market underreaction to such an unambiguous bad...