In 2016, shares of Chipotle Mexican Grill lost more than half their value after widely reported incidents of customers suffering from food food poisoning after eating at he restaurants. The change in stock price illustrates which principle?
A) Market prices reflect information.
B) Individuals respond to incentives.
C) Cash flows are the source of value.
D) The time-value of money.

Question

Quizplus · Accepted Answer

The change in Chipotle's stock price reflects the principle that market prices reflect information. The decrease in value was a direct result of negative news and publicity surrounding the food poisoning incidents. As investors became aware of the increased risk associated with holding shares in the company, demand for the stock decreased, causing the price to fall.

In 2016, Shares of Chipotle Mexican Grill Lost More Than