Which of the following is a possible exception to the efficient-market theory?
A)Underwriters charge investors more for IPO shares than they pay the issuing firms.
B)IPO spreads are lower on larger issues.
C)The issuance of equity is interpreted as an unfavorable signal by investors.
D)The long-run returns of IPOs tend to underperform the market.

Question

Quizplus · Accepted Answer

The efficient-market theory suggests that all available information is already reflected in stock prices. However, the long-run underperformance of IPOs suggests that the market may not fully incorporate all information at the time of the IPO, indicating a possible inefficiency.

Which of the Following Is a Possible Exception to the Efficient-Market