15.3
Distress Risk Puzzle
PYTHON PLUGIN
Distressed
Anomaly
Description
Strategy 15.3: Long safest, short riskiest firms -- the distress anomaly
Strategy Logic
Strategy 15.3: Distress Risk Puzzle (counter-intuitive long/short).
Buy the safest companies and sell the riskiest ones. Compute a
bankruptcy probability proxy P_i using logistic-regression-style
features: debt ratio, profitability, and volatility.
Cross-sectional: buy bottom decile by P_i, sell top decile.
Zero-cost portfolio. Rebalance monthly.
Parameters
| Parameter | Default Value | Type |
|---|---|---|
| vol_lookback | 252 | int |
| long_quantile | 0.1 | float |
| short_quantile | 0.9 | float |
| debt_weight | 0.4 | float |
| vol_weight | 0.4 | float |
| profit_weight | 0.2 | float |
Risk Configuration
| Risk Parameter | Value |
|---|---|
| Max Position Pct | 5.0% |
| Stop Loss Pct | 8.0% |
| Take Profit Pct | 15.0% |
| Max Drawdown Pct | 15.0% |