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Every Friday, Orca will feature an Emoji that relates to Finance, because what is better than having an excuse to use Emoji's. Emoji Finance © 2017 All rights reserved

Emoji Finance Friday©: Market Efficiency

1. You hear some news come out about a company on the market 

2. You tell your news to your friend, who in returns tells more people 

3. Researchers look into the company and they start to notice the price swaying based on the news

4. Finally, you realize that all the information available to you is having a direct effect on the market price 

5. And the stock price goes up and down based on the news out there 

6. This all equals Market Efficiency 

Let us piece this together 

Some news comes out about a company, and you tell some of your friends about this news, now they tell more people and finally researchers are looking into if the news is real or not. Finally, you realize that all this news is affecting the price of the stock as it goes up and down based on all the information that is out there in the market. This all equals Market Efficiency 

Market Efficiency 101 

This is a theory that came about from Eugene Fama in the 1970s that states that is is impossible to outperform the market because all the available information on the company is already reflected in the stock price. What do you think? 

Market is A Bunch Of Mean Girls

Remember in Mean Girls, how far rumors can carry, and how much they can destroy or build someone? Just as rumors did for Gretchen, Regina, Cady, and Karen. Unlike in high school where the topics consisted of who is getting fat, or who kissed whom? The market rumors are about new products, or how much profit X Company will make, or even scandals! #DRAMA

The smallest of rumors can boost or drop a stock if it gets enough traction. Investors act on these rumors, often to get ahead of the competition and stocks can waiver because of it. Tesla, for example, experienced a drop when the rumor of some miss accounting with their acquisition of Solar City, and when the rumor became true, the stock tumbled even more. Investors always have their ears perked up waiting to get any information they can take to get a leg up on their competition and some even spread rumors to see who will act on them. It is like in high school when you are always waiting to hear the juicy gossip but unlike a person, the juicy gossip here is about a company. It is up to you to act on the rumors if you want or wait until there is solid proof to back up the information

So Why Do We Care 

• If you believe in this theory, you are more of a passive investor 

• It is important to understand news can affect a stock 

• You can leverage information or potential information to choose where you want to invest 

Overall, if you believe in the theory or not, it is important to understand that there are external factors that can affect a stocks price, just matters how much and when it does. Always important to work with a financial professional that understand this and can help you navigate all the information that is out there. 

Have a questions? Contact Us 

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