Suppose an efficient market has been operating with regard to stock in a particular company and that company announces that its profits were up 50% from the previous period but the stock price was unchanged after getting the news on a day when all of the other stocks are barely moving. This is

Question

Quizplus · Accepted Answer

The efficient market hypothesis states that stock prices already reflect all publicly available information, so if a company announces a 50% increase in profits, the stock price should already have adjusted to reflect that information. Therefore, it is at least potentially consistent with the efficient market hypothesis that investors were already anticipating the 50% gain and had factored it into the stock price, resulting in no significant change when the news was officially announced.

Suppose an Efficient Market Has Been Operating with Regard to Stock