Crisis and recovery in the wake of super-salient news: Who moves markets?

Abstract We compare reactions in the prices and trading patterns of common stocks and closed-end funds, which have substantially di¤erent investor clienteles, to the September 11, 2001 terrorist attacks. Even in assets with institutional buying, retail investor trading moved prices signi…cantly lower. Although greater salience has been shown to reduce underreaction to news, we conclude the extreme salience of this event resulted in overreaction. Subsequent reversals were substantially security-speci…c and therefore not due simply to improvement in general sentiment. Consistent with microstructure theory, the speed of reversals depended signi…cantly on the relative quality and availability of information about fundamental values. terrorist attacks. Even in assets with net institutional buying, retail investor trading moved prices signi…cantly lower. Although greater salience has been shown to reduce underreaction to news, we conclude the extreme salience of this event resulted in overreaction. Subsequent reversals were substantially security-speci…c and therefore not due simply to improvement in general sentiment. Consistent with microstructure theory, the speed of reversals depended signi…cantly on the relative quality and availability of information about fundamental values. JEL classi…cations: G12, G1

Who moves markets in a sudden market-wide crisis? Evidence from nine-eleven

Abstract We compare reactions in the prices and trading patterns of common stocks and closed-end funds (CEFs), which have substantially di¤erent investor clienteles, to the September 11, 2001 terrorist attacks. When the market reopened six days later, retail investors sold and there were sharp price declines-even in assets with net institutional buying. In the subsequent two weeks, price reversals were substantially security-speci…c and thus not simply due to improved systematic sentiment. Consistent with microstructure theory, comparisons between CEFs and common stocks show the speed of these reversals depended signi…cantly on the relative quality and availability of information about fundamental values