Touched by tragedy: Capital market lessons from the crash of Valujet Flight 592

This study presents an event—time analysis of the effects of the crash of ValueJet Flight 592, the mandated F.A.A. shutdown of ValuJet, and the subsequent restart of the airline on ValuJet shareholders and two portfolios composed of the stocks of major and “low cost” competitors. The results of the study document immense losses for ValuJetʹs shareholders, as well as large “contagion” losses for the holders of other “low cost” airlines, but statistically significant gains for the owners of major airline stocks. A cross-sectional analysis of the abnormal returns registered at the time of the crash and shutdown suggests that fleet age and “low cost” status, but not an airlineʹs public safety record, were significant of the determinants changes in share prices for competitor firms.