This chapter has emphasised that the capital market appears to respond to information from many sources, including
Question:
This chapter has emphasised that the capital market appears to respond to information from many sources, including but not limited to accounting. As an illustration of how non-accounting information appears to affect share prices, consider an article by Stephen Romei that appeared in The Australian on 8 December 1999 (p. 1). The article, entitled ‘Aussies the real thing, Coke hopes’, discussed how Douglas Daft was to ‘take the helm of the Atlantabased global beverages empire in April following the resignation of chairman and chief, Douglas Ivester’. According to the article, ‘The news went down like a flat Coke with investors, with Coca-Cola shares falling 6 percent to $US64, knocking about $US10 billion off the company’s market value. While Mr Daft is considered a star performer inside Coca-Cola, he is not well known on Wall Street’. Why do you think the market reacted in the way it did to the announcement, and do you think that the announcement implies market efficiency or inefficiency?
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