Investing in Chapter 11 stocks: Trading, value, and performance

► Document active trading for Chapter 11 stocks throughout the bankruptcy process. ► Equity value after Chapter 11 filing can be explained by the option theory. ► Return correlation exhibits non-linearity similar to out-of-money call options. ► Investing in Chapter 11 stocks incurs large losses. ► Negative return is consistent with heterogeneous beliefs and limits to arbitrage.