The Risks And Rewards Of Investing In The Stocks Of Bankrupt Companies

This paper tracks the effect of reorganization on the equity issues of firms in Chapter 11 both before and after the filing date. It computes risk and return characteristics before and after filing. The calculations indicate that after filing the systematic risk of shares of Chapter 11 firms declines and the total variance rises. This result is important for investors interested in speculating in shares of companies in reorganization