The Relationship between Bankruptcy Model Predictions and Stock Market Perceptions of Bankruptcy

Michael Timothy Dugan, Timothy B. Forsyth

Research output: Contribution to journalArticle

5 Citations (Scopus)

Abstract

This study uses a cumulative sum technique to determine the point at which the stock market first perceives that a firm may file for bankruptcy. The study then attempts to identify information, whether from financial statements or from other sources, that may have influenced the market in its reassessment of the firm's prospects. The results indicate that the switching point of the mean and variance of stock returns appears to be related both to financial statement information (as measured by changes in bankruptcy model probability assessments) and the release of unfavorable news in the Wall Street Journal.

Original languageEnglish (US)
Pages (from-to)507-527
Number of pages21
JournalFinancial Review
Volume30
Issue number3
DOIs
StatePublished - Jan 1 1995

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Prediction markets
Stock market
Bankruptcy
Financial statements
Stock returns
News
Cumulative sum
Probability assessment

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

Cite this

The Relationship between Bankruptcy Model Predictions and Stock Market Perceptions of Bankruptcy. / Dugan, Michael Timothy; Forsyth, Timothy B.

In: Financial Review, Vol. 30, No. 3, 01.01.1995, p. 507-527.

Research output: Contribution to journalArticle

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