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Market Inefficiencies and Momentum Profitability: Evidence from American Chapter 11 Bankruptcy Stocks

Löfstedt, Marcus LU (2025) NEKH02 20242
Department of Economics
Abstract
This thesis investigates market inefficiencies in Chapter 11 bankruptcy stocks, focusing on whether short-term momentum can yield positive returns. Chapter 11 equities, characterised by minimal fundamental value and retail-driven speculation, offer a unique setting to examine behavioural biases and trading dynamics. A dataset of 40 stocks from 2012-2024 was employed to implement a momentum strategy triggered by price increases and volume spikes. The results reveal statistically significant positive absolute returns, though the strategy fails to outperform the Russel 2000 index on either a risk-adjusted or non-adjusted basis. These findings highlight local inefficiencies driven by speculative bursts, as well as their alignment with... (More)
This thesis investigates market inefficiencies in Chapter 11 bankruptcy stocks, focusing on whether short-term momentum can yield positive returns. Chapter 11 equities, characterised by minimal fundamental value and retail-driven speculation, offer a unique setting to examine behavioural biases and trading dynamics. A dataset of 40 stocks from 2012-2024 was employed to implement a momentum strategy triggered by price increases and volume spikes. The results reveal statistically significant positive absolute returns, though the strategy fails to outperform the Russel 2000 index on either a risk-adjusted or non-adjusted basis. These findings highlight local inefficiencies driven by speculative bursts, as well as their alignment with behavioural finance theories such as prospect theory and overconfidence. By contributing to the understanding of distressed equity trading, this study also raises regulatory considerations for safeguarding retail investors in high-risk, volatile markets. (Less)
Please use this url to cite or link to this publication:
author
Löfstedt, Marcus LU
supervisor
organization
course
NEKH02 20242
year
type
M2 - Bachelor Degree
subject
keywords
Chapter 11 Bankruptcy, momentum, behavioural biases, market efficiency, speculation, retail investors
language
English
id
9184525
date added to LUP
2025-05-16 10:46:49
date last changed
2025-05-16 10:46:49
@misc{9184525,
  abstract     = {{This thesis investigates market inefficiencies in Chapter 11 bankruptcy stocks, focusing on whether short-term momentum can yield positive returns. Chapter 11 equities, characterised by minimal fundamental value and retail-driven speculation, offer a unique setting to examine behavioural biases and trading dynamics. A dataset of 40 stocks from 2012-2024 was employed to implement a momentum strategy triggered by price increases and volume spikes. The results reveal statistically significant positive absolute returns, though the strategy fails to outperform the Russel 2000 index on either a risk-adjusted or non-adjusted basis. These findings highlight local inefficiencies driven by speculative bursts, as well as their alignment with behavioural finance theories such as prospect theory and overconfidence. By contributing to the understanding of distressed equity trading, this study also raises regulatory considerations for safeguarding retail investors in high-risk, volatile markets.}},
  author       = {{Löfstedt, Marcus}},
  language     = {{eng}},
  note         = {{Student Paper}},
  title        = {{Market Inefficiencies and Momentum Profitability: Evidence from American Chapter 11 Bankruptcy Stocks}},
  year         = {{2025}},
}