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The market is going to price in expected change in fundamentals due to the new CEO. They're going to price it in immediately - before the fundamentals actually
by darawk 8y ago
The market is going to price in expected change in fundamentals due to the new CEO. They're going to price it in immediately - before the fundamentals actually change. The market does not proxy change in fundamentals. It proxies change in expected future fundamentals. These are different things.
- pembrook 8y agoWe could be arguing semantics here, but my point is; the market will of course price in prevailing sentiment at the time, but this will be corrected over the next 3 year of earnings releases whether prospects for future fundamentals have actually improved (hence why the study used 3-6 year time periods). The price at year 1 will be based on the prospect of future earnings. The price at year 3 will still be based on the prospect of future earnings...but with 12 quarters of hard data allowing you to more accurately price in the new CEOs specific strategy and its effects on growth prospects.
- darawk 8y agoRight. But any of that future price movement that was predictable based on the known attributes of the CEO at the time will be priced into the initial move. If it were not, then you would have a profitable trading strategy that say, went long Harvard CEOs and short Princeton CEOs (strictly a hypothetical example).