Following up Henry’s post, I happened to reread a passage from James Surowiecki’s “The Wisdom of Crowds in which he discusses the stock market’s reaction to the Challenger disaster, the crucial point being
Did you know that within minutes of the January 28, 1986 space shuttle, Challenger, disaster, investors started dumping the stocks of four major contractors, Rockwell International, Lockheed, Martin Marietta, and Morton Thiokol, who had participated in its launch? Morton Thiokol’s stock was hit hardest of all … the market was right. Six months after the explosion, the Presidential Commission on the Challenger revealed that the O-ring seals on the booster rockets made by Thiokol became less resilient in the cold weather, creating gaps that allowed the gases to leak out.”It struck me reading this, that I’d heard of Rockwell, Lockheed and MM in many contexts, but I’d never heard of Morton Thiokol. It turns out that they are a specialist builder of booster rockets and similar items (they’re now a division of ATK).
This seems to suggest a prosaic explanation of the market reaction. Whatever the cause, the space shuttle program was going to be shut for a long time. This would do a bit of damage to everyone involved, but much more to the rocket specialist Thiokol than to the other three big diversified companies.
The ATK website indicates that they still have plenty of shuttle contracts, so it seems as if the faulty O-rings didn’t do them much long-term damage over and above the effect on the shuttle program.
I haven’t got the full book to hand and I haven’t read the study cited there , so it may be that this explanation has already been ruled out in some way, but I thought the easiest way to find it was to post and see what response I got.