Do Markets React Rationally? The Effect of the September 11th Tragedy on Airline Stock Returns

28 Pages Posted: 19 Apr 2002

See all articles by David Carter

David Carter

Oklahoma State University - Stillwater - Department of Finance

Betty J. Simkins

Oklahoma State University - Stillwater - Department of Finance

Date Written: April 3, 2002

Abstract

On September 11, 2001, terrorists launched a devastating attack against the United States using commercial airliners loaded with jet fuel as weapons. Using the multivariate regression model methodology, we investigate the reaction of airline stock prices to the attack. We test whether the market reaction on September 17th, the first trading day after the attack, was the same for each airline or whether the market distinguished among airlines based on firm characteristics (i.e., rational pricing). Our findings support the notion of rational pricing and suggest that the market differentiated among various airlines. Cross-sectional results suggest that the market was concerned about the increased likelihood of bankruptcy in the wake of the attacks and distinguished between airlines based on their ability to cover short-term obligations (i.e., liquidity).

Keywords: Efficient Markets, Event Study, Airline Industry

JEL Classification: G14, G10, G33

Suggested Citation

Carter, David A. and Simkins, Betty J., Do Markets React Rationally? The Effect of the September 11th Tragedy on Airline Stock Returns (April 3, 2002). Available at SSRN: https://ssrn.com/abstract=306133 or http://dx.doi.org/10.2139/ssrn.306133

David A. Carter (Contact Author)

Oklahoma State University - Stillwater - Department of Finance ( email )

Spears School of Business
Stillwater, OK 74078-4011
United States
405-744-5104 (Phone)
405-744-5180 (Fax)

Betty J. Simkins

Oklahoma State University - Stillwater - Department of Finance ( email )

336 Business Building
Stillwater, OK 74078-4011
United States
405-744-8625 (Phone)
405-744-5180 (Fax)

HOME PAGE: http://spears.okstate.edu/~simkins

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