Strategy #0000000055 · Cross-sectional equity distress risk
Healthy-minus-distressed equity factor
Build a healthy-minus-distressed long-short basket from default-risk signals and inspect market-state exposure.
The distress-risk puzzle describes evidence that high-default-probability stocks can have lower, not higher, average returns in some samples. A healthy-minus-distressed factor estimates distress scores from accounting and market variables, then buys healthier firms and shorts more distressed ones. It is a sample- and model-dependent empirical anomaly with industry, liquidity, leverage and market-beta exposures, not a risk-free reversal trade.
Default probability is a model estimate, not a return forecast; HML distress can have time-varying beta and squeeze risk.
Three ways in
Understand the story. Then inspect the risk.
Start with a familiar situation, check the payoff, then test how the numbers change.
The idea · in two minutes
How do beta hedging and costs change a low-distress long/high-distress short scenario?
Jack buys a low-distress basket and shorts high-distress names, entering assumed returns and weights for each leg.
Rose adds portfolio beta, a market-return scenario and hedge fraction to see how direction exposure offsets factor returns. This remains an assumed portfolio scenario, not a default model.
After market declines, beta may turn negative; rebounds can squeeze short distressed names. Filing availability, delisting returns, halts and trading costs also affect empirical results.
- Healthy basket return assumptionEnter healthy/distressed basket returns, weights, portfolio beta, market scenario and hedge fraction, less costs.
- Distressed short basket underlying returnNo point-in-time filings, delisting treatment, probability calibration, actual holdings or stock-borrow costs.
- HMD after beta overlay and costsIllustrative expiry outcome.
Illustrative research examples only. They are not live signals or a recommendation.
The mechanics · payoff and exposure
HMD=R_{healthy}-R_{distressed}-\beta_pR_m h-C
HMD is assumed return of healthy longs minus distressed shorts; βp is portfolio market beta and h the user-entered hedge fraction. Distress ranks require separate point-in-time estimation.
Greeks: the directional intuition
- 分數模型
- Measures sensitivity to implied volatility.
- 時變 beta
- Measures sensitivity to implied volatility.
- 空頭執行
- Measures sensitivity to implied volatility.
HMD=R_{healthy}-R_{distressed}-\beta_pR_m h-C
Practical context · published observations
Healthy-minus-distressed equity factor: read the record with its caveats.
The chart uses the published figures or explicitly labelled study inputs below. A historical index or model replay is not the same as an investor’s realised account return.
沒有點時財報、退市處理、違約機率校準、真實持倉或空頭借券成本。 Source ↗ · Methodology ↗
Change assumptions and inspect the scenario
Inputs illustrate the strategy mechanics; they are not live quotes, forecasts or investment advice.
Variants · same family, different risk levers
Related strategies can have different exposures and failure modes.
Compare the mechanism and its limits.
| Related strategy | Relationship | What changes | New cost or risk |
|---|---|---|---|
| O-score / failure probability | Accounting and market signals | Uses modeled default probabilities for portfolio ranks. | Data lag and calibration drift. |
| Z-score rank | Financial ratios | Sorts by a financial-distress distance score. | Industry norms and private-company differences. |
| Risk-managed HMD | Market-beta overlay | Reduces market exposure in drawdown/rebound states. | Delayed regime detection and hedge costs. |
No point-in-time filings, delisting treatment, probability calibration, actual holdings or stock-borrow costs.
Read beyond the summary
References
Primary sources and research used to describe the strategy and its limits.