QUESTION 3 (15 Marks) The following article was published by CBC News on its website: Cannabis producer Aphria drops 30% after short seller calls acquisitions "worthiess" CBC News - Posted: Dec 03, 2018 11:03 AM ET I Last Updated: December 3, 2018 Shares in Canadian cannabis company Aphria inc. fell to their lowest level in more than a year on Monday after a short seller published a report alleging the company has wasted mundreds of millions on foreign acquisitions that are essentially worthles. At a short-selling conterence in New York, Gabriet Grego of Quintessential Capital Management outlined his report on the Leamington, Ont,-based company, calling the company a "black hole for shareholders' money." Aphria's stock plunged both on the Toronto and New York stock exchanges when markets opened on Mondiay [December 3], at one polnt falling to a new 52 .week low of $7.38 per share in Toronto. down 29.8 per cent trom Friday's [November 30 , close of $10.51. The shares closed down 27.7 per cent at $7.60 a share on the TSX. Up and down year for Apheria shares It should be noted that Grego has a financial incentive to talk down the price of the company. His firm is what's known as a short seller - investors who make money when stock pnices in the companies they target go down. They do so by borrowing other investors" shares and selling them at current prices, pocketing the profth and replacing the shares theyve borrowed by buying them from someone else for a lower price later on. Recem prominem taroets of short seithers unchude drug company Saleach, and mongage company thome Caottal whice Greoo lays out a mumber of reasone for why he grink Aphita is evervatued. minemal asats and quesenonble corporate qoremance, he now. Aphicia cated Grego's allegations fatse and detamatory. -The company is preganing a avalabite legat options againat Oovintesenential Capefal, at waid in a statertent Monday meming. Grego has vecome an infuentiat ohort welter. this last major taroet, this summer, was a traded tince that investore in the camnatin space can and wal tee in the notoriously volatio sector Hwoe, double-diot twings have become he norm for aome of the bio cannates names. but thay happen on the down sise, too, ofen without any concrete reason, 3 dont think that coavelte company Awia imo. was consicering buring a chunk of the company, The deal never came Now Alitia is reportect interested in baving eannabis company cronos ino. a Fevelers know much about any of these companies," as Roufe pert at Troday is a very good day for inveotors in the soace to aak thematives how sure ther temains vilineatite to timiar aoeisations. Ait youre imveatiog is cannabis noht now. now ture are you that youre inveseang in the nomt compary? (Note Aphine later meroes wah Tatay in December zozol a) Aphria's stock Beta was about 4. On December 3, 2018 the cannabis stock group on the Tsx ended down 2.96\%. The risk free rate at that time was 0.001% per day. Calculate Aphria's one day abnormal stock return on December 3, 2018 following the release of the short-seller's report (4 marks). b) Explain the increase in Aphria's share price and its following decline from a behavioural finance perspective ( 4 marks) c) Some people believe that short sellers provide an important service in securities markets. Describe two reasons for wuch a bellef (4 marks) d) If under securities markets, the price of security fully reflects all information that is publicly avallable about a company. explain why the existence of short sellers is not logically inconsistent with the efficient markets hypothesis (3 marks) QUESTION 3 (15 Marks) The following article was published by CBC News on its website: Cannabis producer Aphria drops 30% after short seller calls acquisitions "worthiess" CBC News - Posted: Dec 03, 2018 11:03 AM ET I Last Updated: December 3, 2018 Shares in Canadian cannabis company Aphria inc. fell to their lowest level in more than a year on Monday after a short seller published a report alleging the company has wasted mundreds of millions on foreign acquisitions that are essentially worthles. At a short-selling conterence in New York, Gabriet Grego of Quintessential Capital Management outlined his report on the Leamington, Ont,-based company, calling the company a "black hole for shareholders' money." Aphria's stock plunged both on the Toronto and New York stock exchanges when markets opened on Mondiay [December 3], at one polnt falling to a new 52 .week low of $7.38 per share in Toronto. down 29.8 per cent trom Friday's [November 30 , close of $10.51. The shares closed down 27.7 per cent at $7.60 a share on the TSX. Up and down year for Apheria shares It should be noted that Grego has a financial incentive to talk down the price of the company. His firm is what's known as a short seller - investors who make money when stock pnices in the companies they target go down. They do so by borrowing other investors" shares and selling them at current prices, pocketing the profth and replacing the shares theyve borrowed by buying them from someone else for a lower price later on. Recem prominem taroets of short seithers unchude drug company Saleach, and mongage company thome Caottal whice Greoo lays out a mumber of reasone for why he grink Aphita is evervatued. minemal asats and quesenonble corporate qoremance, he now. Aphicia cated Grego's allegations fatse and detamatory. -The company is preganing a avalabite legat options againat Oovintesenential Capefal, at waid in a statertent Monday meming. Grego has vecome an infuentiat ohort welter. this last major taroet, this summer, was a traded tince that investore in the camnatin space can and wal tee in the notoriously volatio sector Hwoe, double-diot twings have become he norm for aome of the bio cannates names. but thay happen on the down sise, too, ofen without any concrete reason, 3 dont think that coavelte company Awia imo. was consicering buring a chunk of the company, The deal never came Now Alitia is reportect interested in baving eannabis company cronos ino. a Fevelers know much about any of these companies," as Roufe pert at Troday is a very good day for inveotors in the soace to aak thematives how sure ther temains vilineatite to timiar aoeisations. Ait youre imveatiog is cannabis noht now. now ture are you that youre inveseang in the nomt compary? (Note Aphine later meroes wah Tatay in December zozol a) Aphria's stock Beta was about 4. On December 3, 2018 the cannabis stock group on the Tsx ended down 2.96\%. The risk free rate at that time was 0.001% per day. Calculate Aphria's one day abnormal stock return on December 3, 2018 following the release of the short-seller's report (4 marks). b) Explain the increase in Aphria's share price and its following decline from a behavioural finance perspective ( 4 marks) c) Some people believe that short sellers provide an important service in securities markets. Describe two reasons for wuch a bellef (4 marks) d) If under securities markets, the price of security fully reflects all information that is publicly avallable about a company. explain why the existence of short sellers is not logically inconsistent with the efficient markets hypothesis