If markets are efficient

Question

then why do prices fluctuate at all in between news announcements?

Answer 1

First off, who said markets are efficient? The premise itself is subject to debate.

Psychology rules markets as much as logic.

If there are more buyers than sellers, a market generally will go up. And vice versa. It isn't only news that rules markets. Buyers may have any number of reasons to buy or sell.

Answer 2

Markets are very efficient over time. There will be periods of panic and euphoria where mass psychology can influence decision making by (especially) inexperienced investors.

Markets try to predict about 6-12 months out. When news happens that can alter that consensus prediction, the market will efficiently adjust the price accordingly to the current news.

Example:

The consensus was that oil would trade to $100 bbl. I felt that momentum would push oil much higher to say $120 bbl (see my posts way back when oil was about $80-85 bbl).

Momentum continued until the price of oil was determined by the market where there was a lack of higher price conviction by the buyers, and a huge lower price conviction by the sellers. Hence, oil no longer had a perceived value of $150 bbl. ("The Greater Fool Theory").

The Greater Fool Theory

http://www.investopedia.com/terms/g/grea...

Some influence  by government (on CFTC) to increase margin rules, and such resulted in deleveraging and subsequent (natural) price movements drove oil prices down.

CFTC

http://www.cftc.gov/

Deleveraging

http://www.investopedia.com/terms/d/dele...

Certain members of Congress [1], and a Presidential Candidate [2] wanted to tax oil companies, effectively seize their profits, and ban (outlaw) speculation trading. That would have been a disaster to the markets.

The market, on its own has readjusted the price of oil based on current lower demand, over supply, the sudden increase value of the USD, and as short sellers drive the price back to balance.

No one in government is blaming the short sellers for driving oil prices - DOWN.  

Can you imagine if there were no speculators, no short sellers - NO ONE on the OTHER SIDE OF A TRADE?

Then you would have NO free market.

You would instead have government controlled prices, government controlled business, government controlled markets ---- this would be deemed as Socialism; not Capitalism.

Leave the markets alone, and they will self correct.

Markets ARE efficient.