How Rational are Financial Markets (1)? The ASCOM Case

28. März 2000 | Von | Kategorie: Finanzmärkte

A large Swiss bank recently published a positive analyst report about ASCOM, a public Swiss telecom company.  Within three days the stock price went up 35%. The ‚Neue Zürcher Zeitung‘ commented that this increase contradicted the standard belief in efficient stock markets. Quick experts shout: irrational behaviour. What they ignore though is that the traditional notion of market efficiency is being challenged at a higher level of rationality.

It is conventional wisdom that an analyst report treating a public company cannot reveal any relevant facts that could not have been known before. Even if it were so, one can easily find some good reasons for deviations from expected efficiency:  Some investors do not believe in efficient markets and buy (ASCOM shares in this case). Others expect some investors not to believe in efficient markets and anticipate them to buy. It is rational for them to follow.  A third group of investors might even consciously play the game of the first group in order to trigger the second group’s investments.  The price increase under this scenario is not sustainable, though; a later correction downwards is probable.

Contrary to conventional belief an analyst report can well contain news inasmuch as facts and expectations can be related to each other in novel ways, revealing unnoticed opportunities for a company’s business. Based on a modified and more realistic perception of the business potential, an increase of the stock price can last. But one question remains to be answered: Why should the previously undervalued company not have been able to communicate the potential of its business as the analyst report did?

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