You are perusing the Reuters news Web page and read the following: "NEW YORK, Aug 18 (Reuters) Major U.S. airlines will see a 6 percent drop in passengers during the eight-day Labor Day holiday period as high oil prices continue to roil the industry, the airlines' trade organization predicted on Monday." Using the efficient-markets hypothesis, you believe and expect to see .

Question

Quizplus · Accepted Answer

According to the efficient-markets hypothesis, all relevant information is already reflected in current stock prices. Therefore, if the prediction of a 6 percent drop in passengers during the Labor Day holiday period is accurate, this information should already be reflected in current airline stock prices. If this is the case, then airline stock prices are currently overvalued and should fall in response to the news.

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