Knowledge that Transforms

We explain why the market underreacts to the certified extreme financial distress signal conveyed by the auditor's going-concern (GC) opinion. We conjecture that GC stocks attract retail investors with gambling proclivities. Splitting our GC sample into lottery-like and non-lottery-like firms, we find that the anomaly is concentrated in lottery-like firms, which underperform by −17 % to −32 % over the following year. A range of analyses confirm retail investors with greater propensity to gamble are more likely to trade lottery-like GC stocks. We conclude that retail investor gambling-motivated trading behavior is a key driver of the going-concern market paradox.

We investigate how peer-to-peer (P2P) platform collapses influence investor risk preferences using trading data from a major Chinese brokerage. We find that such collapses induce local investors to become more risk-averse, as evidenced by a significant decline in order imbalance and a reduced willingness to allocate funds into their stock trading accounts. Within their portfolios, investors become more likely to sell high-risk stocks and less inclined to trade unfamiliar ones. These shifts in risk preference appear to be driven by deteriorating investor sentiment, rather than cognitive decline or reduced wealth.

We examine the economic impact of platform marketing on mutual funds and fund families in China. The growth of platform marketing encourages funds to enhance performance by improving managerial skills rather than increasing risk-taking, and inspires fund families to induce more frequent fee reductions and stronger product innovation. Enhanced competitiveness and expanded investment demand lead to greater market share and higher profitability. Platform marketing intensity from funds in other families and the same type of funds generates more pronounced economic effects. Our findings reveal how distribution platforms contribute to incentive-aligned market mechanisms in the wealth management industry.