Tuesday, November 13, 2012

Surprise, surprise.

GMXR is taking now after the big runup - which occurred after announcing a quarter-over-quarter production decline, refinancing of unsecured 5% debt with first-lien debt at a 10% OID, 3% fee, and 15% pay-in-kind coupon (which generous refinancing also required selling the lender a huge stake at 18 cents per share).

Fortunately, we already know about the statistical properties of bankrupting stocks,

The new statistical physics analysis uncovered several ways in which the behavior of stocks approaching bankruptcy differs from that of non-bankrupting stocks. One of the biggest differences is in the distribution of returns: pre-bankrupt stocks are more likely to have larger daily returns (both positive and negative) than stocks that don't become bankrupt. In other words, pre-bankrupt stocks have larger day-to-day price fluctuations. As would be expected, the difference is bigger for negative returns than positive returns, indicating the falling stock price preceding a bankruptcy. The closer the day of bankruptcy approaches, the greater the possibility for these dramatic price changes.

A second major difference between pre-bankrupt stocks and others is that the former experience a stronger correlation between volatility and volume. Previous research has shown that volatility and volume exhibit a positive correlation, meaning that large changes in stock price are often accompanied by large changes in trading volume. But during the 100 days preceding bankruptcy, a stock's volatility and volume both tend to increase more than usual, and so the two become more strongly correlated than normal. So even without knowing the underlying causes of the increased volatility and volume, the strong correlation provides a statistical indication of approaching bankruptcy.
The other big clue about GMXR is that the 2015 bond price didn't change (they hardly traded) after the announcement.

3 comments:

eahilf said...

GMXR is taking...

tanking

eahilf said...

Also you can hear crickets chirping around here since CHK reported...

CP said...

Around where? Shouldn't crickets be gone for the winter?