Anomalies and financial distress

Doron Avramov, Tarun Chordia, Gergana Jostova, Alexander Philipov*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

154 Scopus citations


This paper explores commonalities across asset pricing anomalies. In particular, we assess implications of financial distress for the profitability of anomaly-based trading strategies. Strategies based on price momentum, earnings momentum, credit risk, dispersion, idiosyncratic volatility, and capital investments derive their profitability from taking short positions in high credit risk firms that experience deteriorating credit conditions. In contrast, the value-based strategy derives most of its profitability from taking long positions in high credit risk firms that survive financial distress and subsequently realize high returns. The accruals anomaly is an exception. It is robust among high and low credit risk firms in all credit conditions.

Original languageAmerican English
Pages (from-to)139-159
Number of pages21
JournalJournal of Financial Economics
Issue number1
StatePublished - Apr 2013

Bibliographical note

Funding Information:
We are grateful for financial support from the Q-Group and the Federal Deposit Insurance Corporation Center for Financial Research . We thank Eugene F. Fama (the referee), G. William Schwert (the editor), Cem Demiroglu, Amit Goyal, Jens Hilscher, Stefan Jacewitz, Michael J. Schill, Andreas Schrimpf, Matthew Spiegel, Avanidhar Subrahmanyam, and seminar participants at the Adam Smith Asset Pricing conference (University of Oxford), University of Alberta, the 2011, Asian Finance Association conference, Bar Ilan University, Burridge Center Investment Conference, 2010 Conference on Financial Economics and Accounting, Deakin University, FDIC, Florida International University, 2010 Financial Management Association (FMA) conference, 2010 FMA Asian conference, Goldman Sachs Asset Management, Hebrew University of Jerusalem, Indian School of Business, Interdisciplinary Center Herzlia, 2011 Jackson Hole Finance conference, Koc University, National University of Singapore, SAC Capital, Singapore Management University, State Street Global Advisors, Tel Aviv University, and Texas A&M University for useful comments and suggestions.


  • Asset pricing anomalies
  • Credit ratings
  • Financial distress


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