The Food and Drug Administration (FDA) just announced yesterday that they would approve a new cancer-fighting drug from King.You observe that King had an abnormal return of 0% yesterday.This suggests that
A)the market is not efficient.
B)King stock will probably rise in value tomorrow.
C)King stock will probably fall in value tomorrow.
D)the approval was already anticipated by the market.

Question

Quizplus · Accepted Answer

The abnormal return of 0% suggests that the approval of the new cancer-fighting drug was anticipated by the market, and therefore the approval was already priced in to the stock value. No significant changes are expected in the stock value after the announcement.

The Food and Drug Administration (FDA) Just Announced Yesterday That