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Anomalous Trading Prior to Lehman Brothers' Failure

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  • Gehrig, Thomas
  • Haas, Marlene

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.

Suggested Citation

  • Gehrig, Thomas & Haas, Marlene, 2016. "Anomalous Trading Prior to Lehman Brothers' Failure," CEPR Discussion Papers 11194, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:11194
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    References listed on IDEAS

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    More about this item

    Keywords

    Price discovery; Price impact; Trading volume; Low latency trading;
    All these keywords.

    JEL classification:

    • G00 - Financial Economics - - General - - - General
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • N00 - Economic History - - General - - - General
    • N2 - Economic History - - Financial Markets and Institutions

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