- The stock market’s metabolism varies
- This may create investing opportunities
When a company publishes results or trading updates that beat market expectations, investors tend to like it. Normally, this leads to higher demand for its stock, pushing its price higher.
Advocates of the efficient market hypothesis tend to see investors’ snap reaction to strong news or results as a single repricing event. This theory holds that once an update is out in the world, it is quickly assimilated alongside all the other information that is relevant to finding a fair value. Factor in these new data points, tweak your expectations and – hey presto – a new price can be set.