Jim Davis over at sci.space.policy points out an article with an interesting example of how smart markets can be. They figured out which company was responsible for the Challenger disaster within minutes of the event, and long before the Rogers Commission was even convened, let alone issued its report six months later.

As the news broke, the authors write, the stock prices of all four companies fell anywhere from 2.83 percent to 6.12 percent in the 21 minutes after the crash. But trading was halted only on the stock of Morton Thiokol. "The fact that market liquidity was available to maintain a market in Lockheed, Martin Marietta, and Rockwell while the market for Morton Thiokol dried up suggests that the stock market discerned the guilty party within minutes of the announcement of the crash," Maloney and Mulherin conclude. By the end of the day?when the cause of the accident was still a mystery?Morton Thiokol was down 11.86 percent, while the other three contractors lost 2 percent to 3 percent.

One wonders how many other examples of market function like this there are. Ie, that market participants knew about all along, but academics are only now discovering.

Yes, markets are efficient.

By I suspect something else was going on here. Perhaps Thiokol was already viewed as the weakest company significantly involved with the shuttle? The most dependent upon government largesse?

Or are we just picking up a factoid that fits a neat theory? Post hoc reasoning like this is always suspect.

One anecdote proves nothing.

I didn't claim it was proof. I said it was an example. Note that the article contains a counterexample from the Columbia incident.

One wonders if the PAM proposal (now dead) might not have given us, if nothing else, a better handle on how information flows, and whether this was purely a single anecdote, or the tip of a bigger iceberg....

Rockwell? What's that? Martin Marietta? What's that? You mean there were more than two aerospace companies when you were a boy?