| Popis: |
Anomalies exist in the markets that cannot be explained by traditional asset-pricing models. This paper assesses implications of financial distress for the profitability of anomaly-based trading strategies in Taiwan stock market. We focus on the value-based strategy which conditions on the BM ratio. It involves buying highest BM and selling lowest BM stocks. Financial distress, as proxied by rating downgrades, is likely to be a primary ex ante indicator of a company’s future performance. Anomaly returns of value-based strategy are bigger in high credit risk companies. But unlike the evidence in U.S market, rating downgrades only have limited impact on stock returns in Taiwan. |
