Question

On 3/31/2020, Company ABC released its quarterly report, showing the sales in the first quarter had tumbled 30% as pandemic hit. However, the stock price for company ABC rose by 3% (instead of fell by 3%) after the report is released. Does this mean a failure of the Market Efficient Theory?

Answer 1

Market efficiency theory advocates that all the privately available information and the publicly available information has already been discounted into the stock price and there should not be any movement in the stock price of upon announcement of those information.

it can be seen that quarterly earnings are always known to the board of the directors of the company and the insider management of the company so according to the strong market efficient theory, this information should already have been discounted into the stock price and their should not have been any movement of the stock price upon announcement of such information so it can be seen that after the earnings have been announced, the stock has gone up by 3%, so it was not a random information and it was already known information to the management of the company hence this is a violation of the market efficiency theory because the information was not already discounted into the stock prices as it should not have shown any kind of movement on the upside or downside.

So it can be said that it is not reflecting the market efficiency