Contagious Stock Price Crashes

49 Pages Posted: 15 Nov 2017 Last revised: 18 Nov 2019

See all articles by Buhui Qiu

Buhui Qiu

University of Sydney Business School; Financial Research Network (FIRN)

Fangming Xu

University of Bristol

Cheng (Colin) Zeng

Hong Kong Polytechnic University

Date Written: November 15, 2019

Abstract

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

Qiu, Buhui and Xu, Fangming and Zeng, Cheng, Contagious Stock Price Crashes (November 15, 2019). Available at SSRN: https://ssrn.com/abstract=3069993 or http://dx.doi.org/10.2139/ssrn.3069993

Buhui Qiu (Contact Author)

University of Sydney Business School ( email )

Room 513, The Codrington Building
The University of Sydney
Sydney, NSW 2006
Australia
+61 2 9036 6435 (Phone)
+61 2 9351 6461 (Fax)

HOME PAGE: http://sydney.edu.au/business/staff/buhuiq

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

Fangming Xu

University of Bristol ( email )

School of Accounting and Finance
Marie Dutordoir
Bristol, BS8 1PQ
United Kingdom
+44(0)1173941503 (Phone)

HOME PAGE: http://https://research-information.bris.ac.uk/en/persons/fangming-xu

Cheng Zeng

Hong Kong Polytechnic University ( email )

11 Yuk Choi Rd
Hung Hom
Hong Kong

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