Suppose you read in the paper that Pfizer has a new drug to cure diabetes. Using , you would expect the stock price to .
A)adaptive expectations; rise
B)rational expectations; rise
C)past information; rise
D)adaptive expectations; fall

Question

Quizplus · Accepted Answer

Rational expectations theory suggests that investors quickly incorporate new information into stock prices, resulting in the stock price of Pfizer rising in response to the news of a new drug for diabetes. Adaptive expectations theory, on the other hand, suggests that investors may take time to adjust their expectations and react to new information, possibly resulting in a delay in the stock price rising. Past information alone does not determine future stock prices, as there are many factors that can influence stock prices.

Suppose You Read in the Paper That Pfizer Has a New