[panarky]

It doesn't presume that shareholders are altruistic.

It presumes that shareholders' only objective is to maximize the share price.

From Wells Fargo's reports to investors, it's clear that management believed that investors would interpret successful diversity efforts as important to maximize the share price.

After the diversity rules were suspended, the share price dropped.

It's nearly impossible to prove cause and effect, but the plaintiffs don't have to prove direct causation. They only have to show that management misrepresented the facts in reports to investors, that the false statements were material, and that investors suffered a loss at that time.

[neilv]

How much is the stock movement a direct response to news like that, and how much is it someone gaming based on how others will react to news?

[nwiswell]

Can you elaborate on the distinction between these?

What is a "direct response"? Any change in price is still the result of individual actors expressing directional opinions.

[neilv]

Non-investor, and I was conflating too many concepts, but, very roughly: based on fundamental value of the business vs. only how others will react in buying&selling of the stock (and maybe even nudging others to react).

[nwiswell]

The "fundamental value of the business" is not an exact amount. The day-to-day variation in price (to the extent it isn't correlated to the index, anyway) can generally be viewed as a side-effect of uncertainty about what it actually is. In some sense, the value is unknowable, because it is a function of other things that are not knowable (e.g. future interest rates). So there's a measure of "other people would find an argument for this valuation reasonable", even for the fundamentals.

In any event, this sort of news generally does not move the fundamental value of the business in a way that exceeds the "uncertainty band", so pretty much all of the active trading is necessarily in anticipation of how others will view the news.

This is in contrast to e.g. merger offers, which are much more about the actual value of the business (which has suddenly become very concrete and precise), and not trying to judge the reaction of others. But major events like that are a small minority.