Since the stock market created, it brings the solution for the needs of long term capital from corporation and the wish of investment for small group investors. As increasingly investors join in the market, people begin to analyse the regular of the stock market. Some people like Kendal (1953) believed that the price of stock are random could not easy to find the rule and it will reflects the all the information in the world. However, the person like Fama (1970) suggested that the stock market could be divided into three types each with special characteristics: weak form efficiency, semi-strong form and strong form. And I more prefer with the later theory.
The semi-strong form is the normal type of market in current period. The characteristics for this type of stock market is the share price reflects all historic and publicly information and it react quickly and rationally to new information (Arnold, 2008). This could be proved by the case of NIKE.
From the share price of NIKE in 2011, it could be found that after NIKE announced only 5% increase in net profit in the first period, the share price closed down 5.2% by that day. As the BBC said that the major reason of decreased share price is because of the increase rate in net profit could not achieve the exception level from the investors. Moreover, it also released the current problem of NIKE of the lower profit margin because of the high tax burden and manufacturing cost. Hence, although the net period increased, share price still dropped. This could be found that in the semi-strong market, the share price reflect all the public information, not only the information about the company’s profit but also the information of evaluation by the the third party.
Moreover, it could also be seen that after the second period announced that the well performance (13.8% increase in net profit) the share price jump up in hours after trading. Since the profit increased by rose in revenue, the market still worried about the problem of the cost. Similarly, in the third period, NIKE announced that that the net profit up 15% compare with the same quarter in last year. As the well performance and fantastic figure convenience the analyst that the problem will not affect NIKE significantly, the share price jump more than 5% after hours trading. This agreed with the semi-stock market will quickly reflects the public information.
The company like NIKE operating in the semi-strong market, the investor will keep an eye on the operational condition within the company all the time; and this monitor will encourage the manager to achieve the shareholder values maximisation. On the other hand, for the investors in this kind of market, the high return are not easy to achieve and the fundamental technique skill could sometimes not so useful to apply in analyse. However, as the stock market always reflect the actual performance of the business like the case of NIKE, the investor should back to this point to chose the company, which they was convinced by their management and operation, to invest.
Arnold, G. (2008) Corporate Financial Management
http://www.bbc.co.uk/news/business-13937501
http://www.bbc.co.uk/news/business-15029850
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