Yang Shuwen, a lecturer in the Department of Financial Engineering at the School of Economics and Management (SEM), University of Science and Technology Beijing (USTB), has published a first-author paper in the Journal of Financial and Quantitative Analysis (JFQA), a journal on the Financial Times FT50 list.
The paper, “Real Disinvestments and the Distress Anomaly: Evidence from Stocks, Bonds, and Loans,” was co-authored with Professor Kevin Aretz of the University of Manchester and Assistant Professor Yafei Zhang of the American University of Sharjah.
The study addresses the distress anomaly: the finding that stocks of firms with greater financial distress risk do not consistently earn the higher risk premiums predicted by conventional theory. Instead, the relationship between distress risk and returns may be flat, inverted U-shaped or negative. Existing explanations based on conflicts between shareholders and creditors or investors' preferences for positively skewed returns do not adequately explain both equity and debt, particularly the negative distress premiums the study identifies in corporate bonds and bank loans.
The authors propose and test a framework centered on firms' ability to divest real assets when in distress. This flexibility resembles an American put option, whose negative expected excess return lowers the expected return on the firm's overall assets.
The distribution of proceeds between shareholders and creditors determines the pattern of distress premiums across securities. For either equity or debt, including corporate bonds and bank loans, the distress premium becomes more negative as the distress proceeds allocated to holders of that security increase. When creditors receive most of the proceeds, distress premiums can be negative for both equity and debt.
The findings provide a unified explanation of the distress anomaly and underline the importance of connecting corporate real investment decisions with financial asset pricing.
Published by Cambridge University Press, JFQA features original theoretical and empirical research in financial economics, including corporate finance, investments, capital and securities markets, and quantitative methods. It is included in the FT50 list and applies rigorous peer review standards.
Yang completed her undergraduate studies at the University of International Business and Economics and earned a master's degree from the University of Birmingham. She received her PhD in finance from the University of Manchester in 2020 and is now a lecturer at USTB SEM. Her research interests include empirical asset pricing, machine learning, behavioral finance and macro-finance. Her work has appeared in JFQA and the Journal of Empirical Finance.
