S-Space College of Business Administration/Business School (경영대학/대학원) Dept. of Business Administration (경영학과) Theses (Master's Degree_경영학과)
Why Do Individual Investors Hold Overpriced Stocks? Evidence from Korean Market
무엇이 개인투자자들이 고평가된 주식들을 보유하게 하는가? 한국 주식시장 데이터를 통한 분석
- 경영대학 경영학과
- Issue Date
- 서울대학교 대학원
- 학위논문 (석사)-- 서울대학교 대학원 : 경영학과, 2015. 2. 최혁.
- Campbell, Hilscher, and Szilagyi(2008) reports that firms with a high probability of default risk earn low subsequent returns. This result turns out to be puzzling. Then, Conrad, Kapadia, and Xing(2014, henceforth
CKX) find that stocks with a high probability of default tend to generate extremely high returns (over 100%) over the next year. A feature that those stocks possessing lottery-like (extremely positive skewed) payoffs allow investors to desire to hold them, leading to high valuation and low exante returns.
This paper examines whether distress risk puzzle is also present in Korean market by following methodologies from CHS and CKX. I find that a high probability of jackpot returns have low average future returns in Korean market. Also, there exists a strong correlation between the predicted probability of a jackpot return and the probability of default from the CHS model within Korean market, along with a high correlation between returns of a jackpot and distress strategy.
Therefore, I can conclude that a high probability of jackpot payoffs is a plausible explanation for at least a portion of the low average future returns of stocks with a high probability of default. Also, this explanation can be applied to distress risk puzzle present in Korea.