Is an event unfolding before our eyes?

In Operations Management, as well as some other fields, researchers like to study how people react to various announcements or events about a company. This is called an “event study”. Typically in such studies, the wisdom of a crowd is captured through the price of a company’s stock to which an event is related. Of course, the company needs to be big enough and traded on an exchange. My colleagues Vinod Singhal and Kevin Hendricks have done a lot of work on these studies. In that sense it is interesting to watch what is happening to Boeing now.

Their newest development, the 787 Dreamliner, has recently shown some quality glitches . Here’s how CNN portrayed the story on Wednesday:

boeingcnn

Over the course of Monday and Tuesday, when two announcements about a fire in 787 auxiliary battery, and a fuel valve leak were made, the stock price of Boeing plunged about 5%, which is a lot. More interesting things happened later in the week though.

boeing

Monday and Tuesday were not good for the market (see the red line for the SP500 return), so when it finally recovered on Wednesday, the Boeing stock came back and regained almost the entire lost ground. By Thursday close it was less than 1% off compared to the Monday open. However, on Friday the stock again went down almost 3% — FAA launched a review of 787’s electrical systems.

Is there any difference between these 3 events? Certainly, the first two seem to be isolated ones, whereas the FAA review may have implications for the entire fleet of 787s. We’ll see whether or not it will have a persistent effect. One of the parallels that comes to mind though, is the Ford-Firestone crisis, when the Explorer SUV was more likely to roll over while on the Firestone tires. Then, too, the individual incidents went unnoticed at first, until the start of NHTSA investigation.

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