VW; The 'Diesel Dupe' of 2015

VW have been in the headlights for quite some time now following their emissions scandal which has been ongoing since 2009, un-noticed until now. The sophisticated piece of kit known as the 'defeat device' has been fitted to approximately 11 million cars worldwide, allowing them to cheat on their emissions test and pass, when in reality, their emitting up to 40 times more nitrogen oxide pollutants than is allowed. "We've totally screwed up" (Michael Horn, VW America Boss), that doesn't even cover it.

With diesel sales already slowing, this was the last thing VW needed. The crisis led to a sharp fall in demand, and consequently share prices fell too. So, this poses the question, how efficient is the stock market when information is withheld? Share prices at all times should fairly reflect all relevant available information and new information should affect its price quickly and rationally. 

As we can see from the graph below, VW's share prices plummeted on the 18th September when they finally disclosed their secret to the public. Although if we look more closely, we can actually see that share prices began to fall on the 17th, the day before. This somewhat suggests that information regarding the 'defeat device' was possibly leaked to a specific party just before that information was made available to the public. 

This small decline tells us that the share price reflects Fama's Semi-Strong Form Efficiency and therefore we can rule out Weak Form., and possibly Strong Form? Fama (1970) states that share prices reflect all publicly available information, such as company announcements or annual earnings figures. Abnormal returns cannot be made by studying publicly available information as the market has already adjusted prices to reflect it. 

Please leave any comments, wether you agree or disagree!!