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Anomalous Trading Prior to Lehman Brothers' Failure

Thomas Gehrig and Marlene Haas

No 11194, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We study price discovery during the liquidity freeze of September 2008, when fundamental values were difficult to be assessed. We find that trading volume and trade size significantly increased two days before the public announcement of Lehman's lethal quarter loss. Nevertheless, informational risk as perceived by liquidity suppliers increased only after the public disclosure of this loss. The price impact of trades was minimal and stock markets kept on working efficiently for Lehman stocks until the insolvency announcement. Price efficiency is on average established after half a second, which could have been exploited by low-latency traders.

Keywords: Price discovery; Price impact; Trading volume; Low latency trading (search for similar items in EconPapers)
JEL-codes: G00 G14 N00 N2 (search for similar items in EconPapers)
Date: 2016-03
New Economics Papers: this item is included in nep-mst
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