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

Question

Quizplus · Accepted Answer

Rational expectations theory suggests that investors will incorporate all available information, such as the news about the new diabetes drug, into their expectations for the future. This will lead to an increase in the stock price as investors anticipate higher earnings resulting from the successful launch of the new drug.

Suppose You Read in the Paper That Pfizer Has a New