Anomalous Trading Prior to Lehman Brothers' Failure

51 Pages Posted: 18 Apr 2016

Multiple version iconThere are 5 versions of this paper

Date Written: March 2016

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: low latency trading, price discovery, price impact, trading volume

JEL Classification: G00, G14, N00, N2

Suggested Citation

Gehrig, Thomas and Haas, Marlene, Anomalous Trading Prior to Lehman Brothers' Failure (March 2016). CEPR Discussion Paper No. DP11194, Available at SSRN: https://ssrn.com/abstract=2766502

Thomas Gehrig (Contact Author)

University of Vienna ( email )

Oskar-Morgenstern-Platz 1
Vienna, A-1090
Austria

Marlene Haas

Independent

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