Institutional preferences, demand shocks and the distress anomaly

Ye, Q, Wu, Y and Liu, JL 2018, 'Institutional preferences, demand shocks and the distress anomaly' , British Accounting Review .

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Abstract

Our paper examines the distress anomaly on the Chinese stock markets. We show that the anomaly disappears after controlling for institutional ownership. We propose two hypotheses. The growing scale of institutional investors and changes in institutional preferences can generate greater demand shocks for stocks with low distress risk than those with high distress risk, causing the former to outperform the latter. Consistent with our hypotheses, the growth of institutions explains the anomaly when the institutional market share increases rapidly. We also show that institutional preferences for stocks with low distress risk have significantly increased over time and changes in preferences also explain the anomaly. Finally, momentum trading and gradual incorporation of distress information cannot account for the anomaly.

Key words: institutional investors, institutional preferences, distress, the Chinese stock markets

Item Type: Article
Schools: Schools > Salford Business School > Salford Business School Research Centre
Journal or Publication Title: British Accounting Review
Publisher: Elsevier
ISSN: 0890-8389
Related URLs:
Depositing User: JL Liu
Date Deposited: 21 May 2018 12:52
Last Modified: 21 May 2018 14:47
URI: http://usir.salford.ac.uk/id/eprint/47049

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