When a corporation announces a major decline in earnings,the stock price may initially decline significantly and then rise back to normal levels over the next few weeks. This impact is called
A)the January effect.
B)mean reversion.
C)market overreaction.
D)the small-firm effect.

Question

Quizplus · Accepted Answer

The described phenomenon is known as market overreaction, where investors tend to overreact to news about a company's financial performance, causing a temporary swing in the stock price. As the market digests the news and investors adjust their expectations, the stock price may eventually settle back to more reasonable levels. The January effect refers to a seasonal pattern in stock returns, while mean reversion and the small-firm effect are other market phenomena that do not accurately describe the scenario described in the question.

When a Corporation Announces a Major Decline in Earnings,the Stock