"The Stock Price Reaction to the Challenger Crash: Information
Disclosure in an Efficient Market"
BY: MICHAEL T. MALONEY
Clemson University
HAROLD MULHERIN
Pennsylvania State University
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http://papers.ssrn.com/paper.taf?abstract_id=141971
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Crash.pdf
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Date: December 7, 1998
Contact: MICHAEL T. MALONEY
Email: Mailto:maloney at clemson.edu
Postal: Clemson University
Clemson, SC 29634 USA
Phone: (864)656-3430
Co-Auth: HAROLD MULHERIN
Email: Mailto:jhm14 at psu.edu
Postal: Pennsylvania State University
Middletown, PA 17057-4898 USA
ABSTRACT:
In this paper, we provide clinical evidence on market efficiency
by studying stock price movements around a particular event--the
explosion of the Space Shuttle Challenger. Our work is motivated
by the continuing debate on whether the market quickly and
accurately processes information. A group of researchers have
long argued that stock prices exhibit excess volatility and
anomalous patterns that cannot be explained only by information.
We provide contradictory evidence. We study an event in which
investor panic could easily lead to initial overreaction, and
because the government investigation of the cause of the crash
took five months, one might expect a delayed stock market
reaction to the crash. What we find is that the market
pinpointed the guilty party within minutes, and while there was
some "excess volatility" associated with trading in the
non-culpable firms, this provided little or no profit to traders
with inside information.