Stock Market Reactivity affects on BP

The Stock Market was formed many centuries ago.  It enables government and industry to raise long term capital through the buying and selling of securities from investors.  As well as enabling companies to raise funds it also helps the allocation of resources, better facilitation of mergers, can improve corporate behaviour, status and publicity.  It also benefits shareholders by giving them quick access to the value of their shares or to sell their shares (Arnold, 2008).

There are arguments for how efficient the market is.  Warren Buffet Argues the market is weak, Benjamin Graham thinks it is semi-strong and Kendal believes it is random. ‘Fama defined an efficient market as one in which prices always “fully reflect” all available information’ (Jarrow & Larsson, 2012).  It is not usually possible to have a strong efficient market as information not available to the public can not be taken into consideration by public investors.  All arguments relate to how much information about a company is known at that time. The number of ways in which investors can access this information has improved greatly due to technology. Investors will use different types of access such as newspaper or internet. Depending which source they use will depend on how quickly they can react to information about their company,

BP saw a dramatic decline in share price between 20^th April 2010 and 25^th June 2010.  In this period share price fell by 350.8p leaving shares worth less than half their value by June 2010.   This was most likely caused by the BP Oil rig explosion which killed 11 people and caused an oil spill on 20^th April 2010.  It is said to have cost BP at least £3.8bn. 

Since this disaster BP has not managed to recover its share price.  The last fluctuation occurred on 25^th October 2011 when BP announced a new Chief financial officer and that it had made 3^rd quarter profits of $4.9m.

It took investors over one month to fully react to the oil spill.  This may have been due to the ongoing nature of the disaster of which people did not know the full extent of straight away.  Some investors may have been holding onto their shares in the hope the spill could be recovered quickly and the share price would not be dramatically hit.  However this was not the case.  Therefore BP would appear to operate in a semi-strong market as share prices reflect when new information was released to the public.