Selling Biovail Short Case Solution

2. How do investors gather information about companies like Biovail? What are the sources? How does this information get into stock prices?

There are multiple sources of information collection by investors. Information released by the company which may include website information, communication with security exchange commissions, audited annual reports, press releases, and annual general meetings. Other than the company sources there are multiple third-party companies which have the expertise to provide in-depth analysis of any company’s stock. In addition, there are several credit rating firms which closely follow the company’s and perform in-depth analysis on the company’s performance (Battle & Kuepper, 2021). The other sources of information may be informal channels such as social media platforms and peer reviews. The information shared by all the sources are already incorporated in the market prices of share. The public information does not influence the stock prices because it is already incorporate in the price of the stock thereby suggest the semi-strong form of stock market efficiency. Semi-strong market efficiency hypotheses suggest that all the historical and present public information is already embedded in the stock prices (Bulaki, 2020).  

3. What are the allegations? How should SAC respond in this situation? Should they change their investment strategy going forward? How should Gradient Analytics respond? Should they change their approach in the future?

The allegations were mainly related to the manipulation of the Biovail’s stock price to get the maximum benefit out of the underlying short selling positions. Biovail alleged that SAC Capital and other hedge funds had taken massive, short sell positions on the company’s stock and thereby misstating the facts to make stock price decline to square the short sell positions. Being a major hedge fund in the county, these allegations could severely harm the reputation of the fund and may result in revoking of its hedge fund license. In this regard, the fund may urgently deny these allegations through the advice of its legal counsel. The SAC may not change its investment strategy since the strategy is in line with the interest of the investors and changing the strategy may not be beneficial for the investors. Gradient analytic should also deny the charges and may not pursue to change their approach. Since, Biovail has a long history of such cases whereby they have confronted the hedge funds and research companies. Both SAC capital and Gradient analytics may use the historical lawsuits filed by Biovail to take an opposite stance that this is not the first time Biovail is accusing any other firm of manipulating their stock price.