Anomalous Trading Prior to Lehman Brothers' Failure

48 Pages Posted: 15 Mar 2014 Last revised: 30 Mar 2016

See all articles by Thomas Gehrig

Thomas Gehrig

University of Vienna - Faculty of Business, Economics, and Statistics; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI); Vienna Graduate School of Finance (VGSF); Systemic Risk Centre - LSE

Marlene Haas

Independent

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Date Written: March 30, 2016

Abstract

We study price discovery during the liquidity freeze of September 2008, when fundamental values were difficult to be assessed. We find that trading volume and trade size significantly increased two days before the public announcement of Lehman's lethal quarter loss. Nevertheless, informational risk as perceived by liquidity suppliers increased only after the public disclosure of this loss. The price impact of trades was minimal and stock markets kept on working efficiently for Lehman stocks until the insolvency announcement. Price efficiency is on average established after half a second, which could have been exploited by low-latency traders.

Keywords: Price Discovery, Price Impact, Trading Volume, Low-Latency Trading

JEL Classification: G00, G14

Suggested Citation

Gehrig, Thomas and Haas, Marlene, Anomalous Trading Prior to Lehman Brothers' Failure (March 30, 2016). European Corporate Governance Institute (ECGI) - Finance Working Paper No. 424/2014. Available at SSRN: https://ssrn.com/abstract=2408489 or http://dx.doi.org/10.2139/ssrn.2408489

Thomas Gehrig

University of Vienna - Faculty of Business, Economics, and Statistics ( email )

Vienna, A-1210
Austria

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

European Corporate Governance Institute (ECGI) ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

Vienna Graduate School of Finance (VGSF) ( email )

Welthandelsplatz 1
Vienna, 1020
Austria

Systemic Risk Centre - LSE ( email )

Houghton St, London WC2A 2AE, United Kingdom
London

Marlene Haas (Contact Author)

Independent

No Address Available

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