Dennison Lumber announced last week that its unpopular CEO had resigned.In response to this announcement,the firm's stock price increased from $17 a share to $23 a share.The following day the price declined to $21 a share and has remained constant at that level.This is an example of a(n):
A)over-reaction and correction.
B)underpricing.
C)delayed reaction.
D)pre-activity action.
E)efficient market reaction.

Question

Quizplus · Accepted Answer

This is an example of an over-reaction and correction, where the stock price increases in response to the news of the CEO's resignation, but then corrects itself in the following day(s) as the market adjusts to the news. This is a common pattern in efficient markets.

Dennison Lumber Announced Last Week That Its Unpopular CEO Had