Distress Risk Anomaly and Stock Pricing

Abstract

The negative relationship between the distress risk and stock returns is known as the abnormality of the risk of distress risk, and recent studies consider stock mispricing as one of the factors that cause this abnormality. For this reason, the aim of this research is to first investigate the impact of the distress risk on stock returns in order to identify the abnormality of the distress risk, and in the next step, this research has examined the moderating effect of stock mispricing on the relationship between distress risk and stock returns. In order to test the hypotheses of the research, a number of 106 companies were selected as a selected sample during the years 2012-2022, and to analyze its data from a multivariate regression model using panel data, the results were examined. The findings of the research proved that the distress risk had a negative and significant effect on stock returns, but the moderating effect of mispricing on the negative relationship between the risk of distress risk and stock returns was not confirmed. In other words, the results of the research show that the negative impact of the risk distress risk on stock returns is not dependent on the stock mispricing.

Keywords

• stock returns
• distress risk
• distress risk anomaly
• stock mispricing