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

Yes, this is a clear reflection of the failure of market efficiency theory, because market efficiency theory would be advocating that all the privately available information and the publicly available information should have been discounted into the stock price.

I will classify the quarterly report as an insider information and it should be bundled under the privately available information so these privately available information should have been discounted into the stock price according to the strong form of market efficiency but it was not be discounted because we can see there is a movement of 3% on upside after the announcement of the earnings so it is a clear violation of market efficiency theory.

it can be say that it is a failure of market efficiency theory because the privately available information was not discounted into the stock price.