Contagious Stock Price Crashes
49 Pages Posted: 15 Nov 2017 Last revised: 18 Nov 2019
Date Written: November 15, 2019
This paper examines the contagion effects of stock price crashes along the supply chain. We find that stock price crashes can be transmitted from major customers to suppliers with a delay of up to two weeks. This delay is moderated by the information transparency of the affected suppliers. A long-short trading strategy based on the delayed crash transmission generates significantly positive abnormal returns of 3% per month. In addition, major customer stock price crashes can significantly predict supplier firms being delisted from stock markets in the near future. The results are robust to a battery of sensitivity tests. Overall, our findings shed new light on the consequences of stock price crashes.
Keywords: Contagion effects, stock price crashes, supply chain, information transparency
Suggested Citation: Suggested Citation