Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/60768
Authors: 
Carvalho, Carlos
Klagge, Nicholas
Moench, Emanuel
Year of Publication: 
2009
Series/Report no.: 
Staff Report, Federal Reserve Bank of New York 374
Abstract: 
In September 2008, a six-year-old article about the 2002 bankruptcy of United Airlines' parent company resurfaced on the Internet and was mistakenly believed to be reporting a new bankruptcy filing by the company. This episode caused the company's stock price to drop by as much as 76 percent in just a few minutes, before NASDAQ halted trading. After the 'news' had been identified as false, the stock price rebounded, but still ended the day 11.2 percent below the previous close. We explore this natural experiment by using a simple asset-pricing model to study the aftermath of this false news shock. We find that, after three trading sessions, the company's stock was still trading below the two-standard-deviation confidence band implied by the model and that it returned to within one standard deviation only during the sixth trading session. On the seventh day after the episode, the stock was trading at exactly the level predicted by the asset-pricing model. We also document that the false news shock had a persistent effect on the stock prices of other major airline companies.
Subjects: 
False news
natural experiment
United Airlines
noise
market efficiency
JEL: 
G10
G14
Document Type: 
Working Paper

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