When Happy Feet Corporation announces that their fourth quarter earnings are up 10 percent, their stock price falls. This is consistent with the efficient markets hypothesis ________.
A)if earnings were not as high as expected
B)if earnings were not as low as expected
C)if a merger is anticipated
D)the company just invented a new bunion product

Question

Quizplus · Accepted Answer

According to the efficient markets hypothesis, all available information is already reflected in stock prices. Therefore, if the earnings increase was not as high as expected, it means that the market had already priced in a higher increase in earnings, and the actual increase was perceived as a disappointment, causing the stock price to fall.

When Happy Feet Corporation Announces That Their Fourth Quarter Earnings