Which research finding by Lawson best explains the risks associated with
distressed investing?
A. Return distributions are smoothed and can create problems determining
correlations with other asset classes.
B. Distressed investing entails high levels of illiquidity and may involve mark-to-market valuations; the ultimate results are binary: either very good or
very bad.
C. The outcome for distressed investments depends largely on the
macroeconomic environment and less on security-specific characteristics.
Why is option A incorrect ?
distressed investing you approach is to buy companies which are on the verge of liquidation , bankruptcy etc but those companies are still listed and may be trading as penny stocks therefore price data is still available so there is less usage of unreported data, hence we can’t say taht data is smoothened.