Share Price Movement in the Case of Qinetiq Company

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before the release of the news. The sharp increase and decrease of the share price evident on the dates provided can be argued that the stocks traded abnormally. The sharp decrease and increase of the share price could be attributed to significant new information both negative and positive. Therefore, technical analysis is essential in revealing the core changes within the company before the broader stock market is aware of it. The extent of share move regarding new information can be explained by Dow’s theories concerning investments in approaching the financial markets.

The core major theory underlying new information in stock markets is Dow’s theory that market fluctuations reflect all the known information in the market. This theory asserts that the changes in share price and how well it trades is a reflection of all the available information about the stock market from all the relevant sources. In this theory it is perceived that the stock price share listing is a fair value. Thus, the notable changes in the price share movements the underlying trade could be attributed to major news about the company issuing the stock. Regarding this theory, the market price represents all the knowledge from all the participants including traders, portfolio managers, buy-side analysts, market strategists among others. Concerning the Efficient Market Hypothesis (EMH), the underlying theory provides that the basis underpinning financial decision making is the efficient markets. The theory implies that the share price reflects the available information and the next day prices only reflect tomorrow’s news. EMH is an investment theory providing that the stock market efficiency makes the existing share prices to reflect and incorporate all the relevant information, therefore, stocks will always trade at a fair value on the stock exchanges. Additionally, efficient market hypothesis provides that it is impossible for investors to purchase undervalued stocks or sell stocks for inflated prices.

Also, this investment theory provides that a strong form of efficiency is where all information is reflected in the share prices and thus investors cannot achieve average return regardless of information access. Semi-strong efficiency provides that the share prices reflect only the publicly available information and therefore investors cannot achieve abnormal returns. The weak form efficiency underlying this theory is that the previous stock prices are reflection of today’s price and that the technical analysis is not efficient for predicting future price movements.