The Food and Drug Administration (FDA)just announced yesterday that they would approve a new cancer-fighting drug from King.You observe that King had an abnormal return of 0% yesterday.This suggests that
A)the market is not efficient.
B)King stock will probably rise in value tomorrow.
C)King stock will probably fall in value tomorrow.
D)the approval was already anticipated by the market.
E)none of the above.

Question

Quizplus · Accepted Answer

The abnormal return of 0% suggests that the approval of the drug was already anticipated by the market, meaning that the news was already priced into the stock. Therefore, it is unlikely that the stock will experience a significant change in value in either direction as a result of the FDA's announcement.

The Food and Drug Administration (FDA)just Announced Yesterday That They