Market participants use the information available to them at any given time to form expectations of the future performance of a company and a company’s stock prices reflect these expectations of market participants. One key piece of information that market participants center their expectations on is the potential future performance of other competing firms.
In this CRA Insights, CRA’s Sam Lynch and Swati Kanoria illustrate the concept of market expectations and security prices using the example of the recent decline in the stock price of a US pharmaceutical company after the announcement that its schizophrenia drug under development had failed to meet the primary endpoint in two Phase 2 clinical trials. Relatedly, another US pharmaceutical company with a rival US FDA-approved schizophrenia drug had an increase in its stock price.
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