“The Stock Market Speaks: How Dr. Alchian Learned to Build the Bomb”, Joseph Michael Newhard2014-08 (economics)⁠:

At RAND in 1954, Armen A. Alchian conducted the world’s first event study to infer the fuel material used in the manufacturing of the newly-developed hydrogen bomb. Successfully identifying lithium as the fusion fuel using only publicly available financial data, the paper was seen as a threat to national security and was immediately confiscated and destroyed.

The bomb’s construction being secret at the time but having since been partially declassified, the nuclear tests of the early 1950s provide an opportunity to observe market efficiency through the dissemination of private information as it becomes public.

I replicate Alchian’s event study of capital market reactions to the Operation Castle series of nuclear detonations in the Marshall Islands, beginning with the Bravo shot on March 1, 1954 at Bikini Atoll which remains the largest nuclear detonation in US history, confirming Alchian’s results.

The Operation Castle tests pioneered the use of lithium deuteride dry fuel which paved the way for the development of high yield nuclear weapons deliverable by aircraft. I find statistically-significant upward movement in the price of Lithium Corporation relative to the other corporations & to DJIA in March 1954; within 3 weeks of Castle Bravo the stock was up 48% before settling down to a monthly return of 28% despite secrecy, scientific uncertainty, and public confusion surrounding the test; the company saw a return of 461% for the year.

…Alchian2000 relates the story in an interview:

We knew they were developing this H-bomb, but we wanted to know, what’s in it? What’s the fissile material? Well there’s thorium, thallium, beryllium, and something else, and we asked Herman Kahn and he said, ‘Can’t tell you’…I said, ‘I’ll find out’, so I went down to the RAND library and had them get for me the US Government’s Department of Commerce Yearbook which has items on every industry by product, so I went through and looked up thorium, who makes it, looked up beryllium, who makes it, looked them all up, took me about 10 minutes to do it, and got them. There were about 5 companies, 5 of these things, and then I called Dean Witter… they had the names of the companies also making these things, ‘Look up for me the price of these companies…’ and here were these 4–5 stocks going like this, and then about, I think it was September [1954_70ya], this was now around October, one of them started to go like that, from $2 to around $10, the rest were going like this, so I thought ‘Well, that’s interesting’… I wrote it up and distributed it around the social science group the next day.

I got a phone call from the head of RAND calling me in, nice guy, knew him well, he said ‘Armen, we’ve got to suppress this’…I said ‘Yes, sir’, and I took it and put it away, and that was the first event study. Anyway, it made my reputation among a lot of the engineers at RAND.

…Were there any unexpected positive developments regarding the use of lithium for commercial purposes that could have driven Lithium Corporation’s price upward in the time immediately preceding and subsequent to the successful Castle tests? As I demonstrate below, while stories mentioning lithium appearing in the New York Times or Wall Street Journal throughout 1953–1954_70ya were consistent with a positive outlook for the lithium market, there were no sudden positive changes that alone would seem to explain very large increases in the valuation of Lithium Corporation in the months surrounding Operation Castle.

Using daily closing bids of major publicly traded manufacturers of fuel producers I find statistically-significant upward movement in the price of Lithium Corporation stock relative to other metal-producing corporations and to the Dow Jones Industrial Average (DJIA) in March 1954; within 3 weeks of Castle Bravo the stock was up 48% before settling down to a monthly return of 28% despite secrecy and public confusion surrounding the test. This greatly outperformed the other stock returns for the same month and the DJIA which saw an increase of 2.3% for the month. The price of Lithium Corporation continued to rise for the remainder of 1954 and saw a return of 461% for the year, some of which was gained in the two months leading up to the test despite little price movement in the 12 months prior. Lithium Corporation was seemingly singled out not only in the lead-up to the test, suggesting insider information, but after the successful test as well, suggesting successful dissemination of information relevant to the value of Lithium Corporation in the weeks and months following Operation Castle’s success.

…Given the large returns seen by Lithium Corporation in 1954, perhaps the market also foresaw the massive magnitude of the arms race that followed. If lithium was considered to be the likely source of the much greater destructiveness of new hydrogen bombs, and if this destructiveness suggested to investors that the arms race would only accelerate, then an expectation of massively increased demand for lithium by the government could justify the returns seen by Lithium Corporation This would suggest that the market predicted that increasingly powerful weapons would, perhaps counter-intuitively, result in the stockpiling of even more nuclear weapons than otherwise would have been built. Indeed, the US achieved its all-time high of 31,255 nuclear warheads in 1967, up from 1,436 in 1953, an increase of 2,000% in 14 years.

Ex post, the returns seen by Lithium Corporation following Castle Bravo seem quite reasonable.