The market's irrational expectations of open source

I've commented on Oliver Alexy's research on open source's effects on stock prices before, but was gratified to see it featured in today's Wall Street Journal.

It turns out, as per Mr. Alexy's research, that open source can have a salubrious effect on one's stock price, but only if done right:

Companies saw their stock price rise if they met one crucial condition: explaining how they expected their open strategy to bring in short-term revenue. Companies that clearly communicated a short-term revenue model saw an average stock-price increase of 1.6 percent. Companies that didn't saw an average decline of 1.6 percent. This means companies can't rely on vague long-term assurances.

Ironically, this betrays a woefully naive view of open source by the market. Open source is a marathon, not a sprint. It's not a quick fix for any business.

In other words, the very thing that the companies most need to do (i.e., take a long-term view of open source's benefits for their businesses) is the thing most likely to punish them in the market. Who said markets are rational?

[ShaunRConnolly]

I read this WSJ article and wrote it off as uninteresting/uninformative since an impact of +/- 1.6% strikes me as pretty darn close to statistically insignificant.

Honestly, that low of a % difference tells me that the market really doesn't care if/when a company changes from closed to open.

[ShaunRConnolly]

I read that WSJ article and actually found it uninformative. A delta of +/- 1.6% seems pretty close to statistically irrelevant. Especially given the subjective nature of the statement "Companies saw their stock price rise if they met one crucial condition: explaining how they expected their open strategy to bring in short-term revenue."

[Kesteral]

'Professor Mode'

Statistical relevance depends on several more factors than simply the % change. The amount of deviation in the baseline is a major factor, as is the magnitude of the change. Since, the report dosn't give either of these numbers, we cannot say for certain wether a 1.6% change +/- is significant or not. a 1.6% increase of a $200 stock is a very significant earning, especially if the stock has been very stable in the past. It is wrong for the readers to reject the numbers out of hand simply because the percentage of change is low.