Shareholder Wealth and Trading Volume Responses to Train Wrecks
35 Pages Posted: 30 Nov 2009
Date Written: November 19, 2009
Train wrecks are random events which have the potential to cause catastrophic losses in lives and property. Information about the extent of losses becomes available slowly which can delay shareholder responses. The sub-set of train wrecks with passenger fatalities are associated with an immediate and significantly negative CAR. There is weak evidence of a delayed decline in shareholder wealth after a train wreck. No other wreck attribute (injuries, property damage, environmental damage, etc.) are systematically correlated with announcement period or subsequent returns. There is a highly significant rise in trading volume following train wrecks, which increase and remains high as long as six weeks after the wreck. This evidence is consistent with the hypothesis that bad news is incorporated slowly but efficiently into asset prices.
Keywords: train wreck, announcement effect, volume effect
JEL Classification: G14
Suggested Citation: Suggested Citation