The complexity of price discovery in an efficient market: the stock market reaction to the Challenger crashJournal of Corporate Finance (2003)
AbstractWe provide evidence on the speed and accuracy of price discovery by studying stock returns and trading volume surrounding the crash of the space shuttle Challenger. While the event was widely observed, it took several months for an esteemed panel to determine which of the mechanical components failed during the launch. By contrast, in the period immediately following the crash, securities trading in the four main shuttle contractors seemingly singled out the firm that manufactured the faulty component. We show that price discovery occurred without large trading profits and that much of the price discovery occurred during a trading halt of the firm responsible for the faulty component. Finally, although we document what are arguably quick and accurate movements of the market, we are unable to detect the actual manner in which particular informed traders induced price discovery.
- Price Discovery,
- Stock Market,
Publication DateSeptember, 2003
Citation InformationMichael T. Maloney and J Harold Mulherin. "The complexity of price discovery in an efficient market: the stock market reaction to the Challenger crash" Journal of Corporate Finance Vol. 9 Iss. 4 (2003)
Available at: http://works.bepress.com/michael_t_maloney/3/