Wells Street Journal: Sun and booze makes Friends Life lose

Something very weird happened to the stockmarket last week. It all started when Friends Life, the provider which has now been subsumed by Aviva, saw its share price plummet almost 6 per cent on the morning of 8 April.

So what had caused this mass sell-off? Reports of jitters about the imminent mega merger? Or an annuity customer claiming he had discovered the secret to immortality?

Friends Life’s explanation, delivered through a stockmarket announcement at 10:52am, was far simpler. Traders, the masters of the universe representing “the market” who see all and know all, had apparently forgotten the impending takeover meant the provider would not have an ex-dividend date. This is the point at which the market usually reprices a stock by the expected dividend amount.

This had all been announced before, so how did the market get its valuation of Friends Life completely wrong for over three hours? Experts suggest over exposure to sun and booze over the bank holiday weekend could well have been to blame.

One regulatory insider told the WSJ: “I remember a case where the price of an oil stock fell 30 per cent because a trader had shorted it while walking home drunk from the pub. The days when we thought markets worked perfectly are well and truly over.”

Hargreaves Lansdown’s Laith Khalaf says: “I would observe it is one in the eye for those who tell us that the market is a fully rational entity that reflects all available information at all times, except of course when it gets the day wrong.”

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