Sell the Rumour, Buy the Fact?

13 Pages Posted: 4 Mar 2014

See all articles by Ben R. Marshall

Ben R. Marshall

Massey University - School of Economics and Finance

Nuttawat Visaltanachoti

Massey University - Department of Economics and Finance

Genevieve Cooper

Massey University

Date Written: March 2014

Abstract

We document a high‐profile instance of mispricing that is puzzling given the gradual information diffusion hypothesis and the lack of obvious limits to arbitrage. An internet search in 2008 led to a story about United Airlines’ 2002 bankruptcy being re‐released as ‘news’. This resulted in United Airlines losing 73 per cent of its value and caused a $4.2 billion decline in the value of airline stocks and United Airlines suppliers. The incorrect bankruptcy ‘news’ was quickly retracted, which led to a rebound in other airline and supplier firms, but the stock price of United Airlines was adversely affected for 4 days.

Keywords: Rumour, Gradual Information Diffusion, Investor Inattention, Limits to Arbitrage

JEL Classification: G10, G11, G12, G14

Suggested Citation

Marshall, Ben R. and Visaltanachoti, Nuttawat and Cooper, Genevieve, Sell the Rumour, Buy the Fact? (March 2014). Accounting & Finance, Vol. 54, Issue 1, pp. 237-249, 2014, Available at SSRN: https://ssrn.com/abstract=2404096 or http://dx.doi.org/10.1111/j.1467-629X.2012.00496.x

Ben R. Marshall (Contact Author)

Massey University - School of Economics and Finance ( email )

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Nuttawat Visaltanachoti

Massey University - Department of Economics and Finance ( email )

School of Economics and Finance
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Auckland
New Zealand
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64 9 441 8177 (Fax)

Genevieve Cooper

Massey University ( email )

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Palmerston North, Manawatu 4442
New Zealand

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