Sometimes one observes that the price of a company's stock falls after the announcement of favorable earnings.This phenomenon is
A) clearly inconsistent with the efficient market hypothesis.
B) consistent with the efficient market hypothesis if the earnings were not as high as anticipated.
C) consistent with the efficient market hypothesis if the earnings were not as low as anticipated.
D) the result of none of the above.

Question

Quizplus · Accepted Answer

According to the efficient market hypothesis, all publicly available information is already reflected in the stock price. So, if a company's earnings were not as high as anticipated, the stock price may fall even after the announcement of favorable earnings as the market may have already priced in higher earnings expectations. This is consistent with the efficient market hypothesis.

Sometimes One Observes That the Price of a Company's Stock