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Does financial distress risk drive the momentum anomaly? -Evidence from the U.S. market

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dc.contributor Aalto University en
dc.contributor Aalto-yliopisto fi
dc.contributor.author Wu, Yajuan
dc.date.accessioned 2011-11-14T11:23:36Z
dc.date.available 2011-11-14T11:23:36Z
dc.date.issued 2010
dc.identifier.uri https://aaltodoc.aalto.fi/handle/123456789/502
dc.description.abstract PURPOSE OF THE STUDY The main objective of this thesis is to test whether the momentum effect is driven by financial distress risk, a new theory which has been recently proposed by Agarwal and Taffler (2008) in their UK-based study, using data collected from U.S. manufacturing industry. Furthermore, this thesis also investigates the existence of a link between distress risk and other two market anomalies, i.e. size effect and value effect, which has been suggested but not fully agreed in previous papers. Altman’s (1968) z-score bankruptcy prediction model is specifically chosen to determine sample firm’s financial health status, and all the tests in this study are conducted on this basis. DATA The data set used in this thesis consists of all American manufacturing firms listed on NYSE, AMEX and NASDAQ with assets over $ 1 million. All accounting data and stock market data are retrieved from Thomson ONE Bank database. Other market index data (market return, one-month T-bill rate, return on size factor and book-to-market factor) is retrieved from Professor Kenneth R. French’s website. 20-year period is covered in this study starting from June 1989 through June 2009. RESULTS The sample-based evidence obtained in this paper is found inconsistent with Agarwal and Taffler’s (2008) argument. More specifically, although the market underreaction to financial distress risk is proved and the momentum effect phenomenon is found, my results do not show that the momentum effect vanishes after financial distress risk factor gets controlled – the momentum effect is not proxying for financial distress risk. On this basis, I have to conclude that Agarwal and Taffler’s (2008) new theory regarding the relationship between momentum effect and distress risk is not applicable on the U.S. market. In addition, I found no evidence to suggest firm size and book-to-market equity are capturing distress risk. en
dc.format.extent 87
dc.format.mimetype application/pdf en
dc.language.iso en en
dc.title Does financial distress risk drive the momentum anomaly? -Evidence from the U.S. market en
dc.type G2 Pro gradu, diplomityö fi
dc.contributor.school Kauppakorkeakoulu fi
dc.contributor.school School of Economics en
dc.contributor.department Department of Accounting and Finance en
dc.contributor.department Laskentatoimen ja rahoituksen laitos fi
dc.subject.keyword Altman’s z-score
dc.subject.keyword financial distress risk
dc.subject.keyword market underreaction
dc.subject.keyword momentum effect
dc.identifier.urn URN:NBN:fi:aalto-201111181414
dc.type.dcmitype text en
dc.programme.major Finance en
dc.programme.major Rahoitus fi
dc.type.ontasot Master's thesis en
dc.type.ontasot Pro gradu tutkielma fi
dc.subject.helecon rahoitus
dc.subject.helecon financing
dc.subject.helecon rahoitusmarkkinat
dc.subject.helecon financing markets
dc.subject.helecon riski
dc.subject.helecon risk
dc.subject.helecon Yhdysvallat
dc.subject.helecon United States
dc.ethesisid 12370
dc.date.dateaccepted 2010-09-08
dc.location P1 I
local.aalto.openaccess yes
local.aalto.idthes 12370


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