From the context of market efficiency, how do you explain the delayed market reaction to today’s (8/15/2014) breaking news about the Ukrainian troops attacking the Russian military convoy:
As indicated by the yellow oval, the ES mini (S&P 500 futures) only fell 2 points within the first minute after the story broke at 9:40 and continued to gradually fall in an orderly staircase manner, culminating with a 6 point drop 15 minutes later. A initially muted response to bad news that progressively gets worse, with increasing volume, could suggest an inefficiency that EMH (efficient market hypothesis) should not allow, because that could imply that market didn’t price/digest all of the available information instantly. If someone got the news early, they could have sold it the market short, because this story is a ‘big deal’ relatively speaking, and two points doesn’t seem commensurate to the magnitude of the potential implications of this development.
When you have news like earnings, fed meetings or economic data, the market reaction is strongest after it’s announced and maybe the market may drift in the direction of the initial reaction or go against it, while with the Ukraine news today, the strongest reaction occurred 15 minutes later after the ES contract lost 6 points in just a single minute.
Some possible explanations:
Maybe the Ukraine news was leaked/revealed to a handful of market participants before the AP reported it.
Or traders initially didn’t trust the authenticity of the story, and then only after being corroborated by other media did the selling intensify.
Was it on Bloomberg terminal first? If the Bloomberg terminal picked it up at exactly 9:40, then it’s definitively worth paying for a terminal and then never taking your eyes off it, because there will be news inefficiencies to exploit such as this example.
Or not everyone who has a terminal is looking at once, which is why whoever keeps their eyes glued the longest is the winner. Everyone who has a terminal looks at expected data like jobs and FOMC meetings, but the pockets of profitability are not from the events everyone is expecting when many people are not paying close attention to their screens.
Despite the unexpected nature of such events, the stock price of companies after buyouts and partial acquisitions don’t seem to exhibit hysteresis; the news is digested instantly as seen from the price action of Monster Energy after Coca Cola took a large stake in the company:
The bulk of the gains were made with the minute the news broke, indicating that the market had digested it instantly, seemingly in agreement with EMH.
Six days ago, when Obama announced strikes against ISIS, the market reacted in a manner consistent with the EMH, with the bulk of the movement occurring the minute the story broke:
Even if stocks and indexes trend after news to allow traders to profit from the price action bias, EMH implies that such trending activity cannot occur reliably enough for traders to make excess risk adjusted returns.
So maybe today was just an anomaly where traders were unusually slow to react to the news.