Intra-Day Characteristics of Stock Price Crashes

This article presents the first detailed analysis of the intra-day characteristics of idiosyncratic stock price crashes. The analysis focuses on the impact of large crashes in single stocks on their intra-day returns and liquidity in the US market. Furthermore, optimal intra-daily behavior during crashes is studied. Crashes are found to happen rather quickly, usually during a time interval of a few hours. In general, a strong increase in trading activity is observed during a crash, indicating that investors are able to sell their stocks even in distressed markets. The level of liquidity change is linked to the size of the crash. However, there is little evidence that the large sales volume during a crash drives down stock prices. After a stock price crash a significant momentum effect is found for several hours. Stock price crashes appear to reduce information asymmetries.

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1324705