Do financial distress and liquidity crises affect value and size premiums?

Bas, T., Elgammal, M.M., Gough, O., Shah, N.S. and van Dellen, S. 2016. Do financial distress and liquidity crises affect value and size premiums? Applied Economics. 48 (39), pp. 3734-3751. https://doi.org/10.1080/00036846.2016.1145345

TitleDo financial distress and liquidity crises affect value and size premiums?
TypeJournal article
AuthorsBas, T., Elgammal, M.M., Gough, O., Shah, N.S. and van Dellen, S.
Abstract

This study investigates the impact of liquidity crises on the relationship between stock (value and size) premiums and default risk in the US market. It first examines whether financial distress can explain value and size premiums, and then, subsequently, aims to determine whether liquidity crises increase the risk of value and size premium investment strategies. The study employs a time-varying approach and a sample of US stock returns for the period between January 1982 and March 2011, a period which includes the current liquidity crisis, so as to examine the relationship between default risk, liquidity crises and value and size premiums. The findings indicate that the default premium has explanatory power for value and size and premiums, which affect firms with different characteristics. We also find that liquidity crises may actually increase the risks related to size and value premium strategies.

KeywordsDefault Risk; Value Premium; Size Premium; Liquidity Crises
JournalApplied Economics
Journal citation48 (39), pp. 3734-3751
ISSN0003-6846
1466-4283
Year2016
PublisherTaylor & Francis
Accepted author manuscript
File Access Level
Open (open metadata and files)
Digital Object Identifier (DOI)https://doi.org/10.1080/00036846.2016.1145345
Web address (URL)http://dx.doi.org/10.1080/00036846.2016.1145345
Publication dates
Published online08 Mar 2016

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