Matt Levine’s Money Stuff: A Stock Price Is Not a Prediction

Probabilities

Stock prices sometimes tell you what the market thinks will happen. Consider a company that has signed a merger agreement to sell itself for $30 per share in cash. If the stock trades at $29, that suggests that the market thinks the deal will close. If the stock trades at $18, that suggests that the market thinks the deal won’t close. If the stock trades at $31, that suggests that the market thinks someone else will come in and offer more money to buy the company.

Suggests. None of these prices gives you an exact market-implied probability for any ...