Fly the Friendly Skynet: Reaction to a False-News Event for United Airlines

Abstract

On September 8, 2008, a false-news event precipitates a sharp decline in United Airline’s stock price, rapidly leading to an exchange-mandated trading halt. This event allows for the empirical investigation of the effects of a false-news trading halt in an attempt to determine its effect on market quality for United Airlines as well as its industry contemporaries. Findings suggest that United Airlines’ reaction to the false-news halt is similar to documented changes in market quality surrounding informational halts; we find a significant price response and an increase in trading volume and post-halt volatility. The market reaction of other publicly traded major airlines suggests that a contagion effect exists for firms that are informationally related to organizations experiencing a firm-specific trading halt, even when the halt is prompted by a false-news shock. A muted reaction on the part of regional airlines implies that the market is able to establish the level of information relatedness based on firm characteristics and that this awareness impacts the market’s subsequent reaction.