How efficient is the stock market

Is the market sentiment right? Whilst for a long time a lot of people argued that the market was rational and that valuations were made purely on the financial statistics, now that has flipped and many people recognise how human emotions, intuition and gut feeling are caught up in valuations, along with the prices.

After all, when people feel a bit gloomy about certain new and the entire value of companies drops by say a few billion pounds, without any of those companies doing anything different or any news about them changing whatsoever, then it is hard to argue that is entirely rational.

So there is an important lesson there: the markets are not always right and this means that there can be opportunities for a shrewd investor to work out the pricings that they don't think are right, and then act accordingly.

Typically if a company falls on bad news then some people will make the judgement call that the correction in price was far too harsh and will buy in, for instance. Although it is important to note that bad news can lead to a rise in share price and vice versa.

This is confusing for new investors and is important to work out why it might be the case: it is because the markets are often said to have already "factored in" various pieces of news they expect to happen in the future, so there might in a sense have been even worse results factored into the share price, so when it announces merely bad results the share price actually goes up, and vice versa.

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How efficient is the stock market

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