Azeez, Walé with Jackie Wattles contributing to the report.
CNN.com
Posted 10/15/2021
Key words and Definitions
Efficient Markets Hypothesis – or EMH, is the theory that the current market price of a financial asset reflects all relevant information.
Semi-strong form efficiency – the form of EMH that maintains all public information is represented in the current price of a financial asset.
Weak-form efficiency – the form of EMH that maintains all information contained in past prices is represented in the current price of a financial asset.
Summary: Key Points in the Article.
The space tourism firm Virgin Galactic announced it was making changes to the aircraft’s upcoming schedule that would delay “the start of full commercial service to the fourth quarter of next year.” The firm’s stock plunged 14% in one day after the announcement. The firm’s CEO Michael Colglazier stated the decision was based on very thorough data analysis and the additional time would allow Virgin Galactic to spend more time on an “enhancement program.” The program’s stated purpose is to improve the performance of the firm’s rocket-powered aircraft the VSS Unity and also the “mother ship from which it launches.”
Colglazier stated the decision to delay underscores the firm’s focus on safety and it was the best decision for the business. The firm’s founder, billionaire Richard Branson, made history by becoming the first person to be launched into space by a privately funded space venture. His July 2021 trip was followed a few days later by Jeff Bezos aboard his spacecraft. Virgin Galactic currently has over 600 people with prepaid tickets that are anxiously awaiting their turn to experience space flight.
Thinking Critically Questions:
- Why are most of the large, organized stock exchanges considered to be efficient?
- Why did the price of Virgin Galactic stock fall 14% in one day?
- Why did Virgin Galactic push the start of commercial flights back into late 2022?
Multiple Choice Questions
-
If the current price of a stock reflects all information, both public and private, the market is;
a. strong-form efficient.
b. weak-form efficient
c. semi-strong form efficient
d. none of these
2. When new positive information is released about a publicly traded firm the stock price should;
a. increase
b. decrease
c. remain unchanged
d.not enough information to answer this question
3. The information released by Virgin Galactic lowered the forecast of expected future cash flows
a. true
b. false
Pearson Finance News 