Sell the rumour, buy the fact?


  • We thank conference participants at the 2010 FMA Annual Meeting in New York and the 2010 New Zealand Finance Colloquium and Veljko Fotak (our FMA discussant), Hamish Anderson, Henk Berkman, Ben Jacobsen, Chris Malone, Nick Nguyen, Kuntara Pukthuanthong, Jeff Wongchoti and the editor, Robert Faff for valuable comments. All errors are our own.


We document a high-profile instance of mispricing that is puzzling given the gradual information diffusion hypothesis and the lack of obvious limits to arbitrage. An internet search in 2008 led to a story about United Airlines’ 2002 bankruptcy being re-released as ‘news’. This resulted in United Airlines losing 73 per cent of its value and caused a $4.2 billion decline in the value of airline stocks and United Airlines suppliers. The incorrect bankruptcy ‘news’ was quickly retracted, which led to a rebound in other airline and supplier firms, but the stock price of United Airlines was adversely affected for 4 days.