For those who still think stock markets are efficient, The New York Times today offered an interesting example of why they may want to reconsider.
The Times’ Josh Barro writes that, after the publication of his recent article on the impact that Uber is having on taxi services, the shares of Medallion — a specialty finance company with about half of its portfolio in loans secured by taxi medallions — fell more than 7 percent.
“Here’s the odd thing about the Medallion Financial price drop: The pertinent information in my article was already substantially publicly available before I wrote it,” Barro writes. “I calculated the 17 percent decline in New York City taxi medallion prices from monthly transaction reports published on the city’s taxi commission website. I found the 20 percent decline in Boston prices by examining tables published in a New England taxi trade publication called the Carriage News.”
“Investors were already wary of Medallion,” he adds. “The company’s stock had peaked almost exactly a year earlier at $17.74 after a two-year run-up. It had fallen almost 40 percent to close at $10.78 the day before Thanksgiving.”
If markets truly were efficient, Barro says, the discussion of already-public information should not have impacted Medallion’s price. He looks at some possible reasons for Medallion’s decline after his article ran, and why the stock didn’t behave in a manner consistent with the Efficient Market Hypothesis.