Why prices move
A price moves when market participants' expectations change. It isn't news that moves prices, it's news nobody was expecting.
For any given price, there are people who want to buy and people who want to sell. The price moves to wherever the two sides currently balance.
Here's the important part: for every trade, there's someone on each side. If you buy a stock because you think it's cheap, someone else is selling you that exact stock because they think the opposite. One of you is wrong.
That's why news works differently than most people think. A company reports record profits, and the price falls. That's not a contradiction: the market had expected an even higher profit, and that expectation was already baked into the price.
Remember this: prices don't move because of news, they move because of surprises. If you read it in the paper, everyone else already knows too, and the price has already adjusted.
Formally, the price is the point where aggregate demand meets aggregate supply, with both curves arising from the heterogeneous expectations of market participants. A price change requires a shift in at least one of the curves, meaning a change in expectations, risk appetite, or liquidity needs.
The efficient-markets hypothesis holds that available information is already reflected in prices. In its semi-strong form, that covers all public information. It follows that prices react to the unexpected part of an announcement, not its content. Empirically, event studies bear this out: the price jump happens within seconds of publication and correlates with the deviation from the consensus estimate, not with the absolute figure.
The efficiency thesis isn't uncontested. Behavioral-finance research documents over- and underreactions, momentum effects, and price bubbles that sit uneasily with full efficiency. The practical conclusion for retail investors stays the same either way: even a market that's only approximately efficient reacts faster than reading the newspaper allows.
Summary
- For every trade, someone on the other side holds the opposite view.
- Prices react to surprises, not to news itself.
- What you just read is already in the price.
Did you get it?
Why can a price fall on good news?
Because the market had expected even better news. The expectation was already priced in.
What does the semi-strong form of market efficiency claim?
That all publicly available information is already reflected in prices.
What does that mean for you in practice?
That trading on publicly known news gives you no edge.
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