Speculating on a Cure of Cander: A Non-Event that Made Stock Prices Soar.

A front page Sunday New York Times article on a potential development of new drugs to cure cancer caused the price of EntreMed (ENMD) stock to rise from 12.063 at the Friday close, to open at 85 and close near 52 on Monday. Trading volume was more than 400 times the normal trading volume, and liquidity in the stock seems to improve on that day. The stock price closed above 30 in the two weeks following the Times article. The market's enthusiasm lifted the prices of other biotechnology stocks. increments reduce market liquidity. Although the market seems to have reacted to genuine news featured in the Times piece, the article in fact contained no new-news: the potential breakthrough in cancer research had been published in Nature, and in various popular newspapers (including the Times) more than five months earlier. ENMD stock price change was much milder then. Market reaction was also relatively subdued seven months later, when the Wall Street Journal reported prominently that other laboratories had failed to replicate the results reported in Nature. No contagion to other biotech firms seems to have taken place on these two occasions. These extreme events offer a clean experiment. They suggest that enthusiastic public attention can induce a permanent rise in share prices, even when no genuinely new information is presented. The events call into question the role of expectations in the standard finance paradigm, which argues that a security price is the present value of expected future cash flows.