Last week, Janus Plastics announced that they had developed a new plastic container that was stronger and more durable and also easier to recycle. In response to this announcement, Janus' stock price rose from $23 a share to a high of $36 a share and then settled back to $27 a share. This is an example of a(n):
A) over-reaction and correction.
B) post-activity reaction.
C) delayed reaction.
D) pre-activity action.
E) efficient market reaction.

Question

Quizplus · Accepted Answer

The initial jump in stock price to $36 a share indicates an over-reaction to the news, and the subsequent settling back to $27 a share suggests a correction. This is a common pattern in efficient markets where investors tend to overreact to news initially and then correct their behavior over time.

Last Week, Janus Plastics Announced That They Had Developed a New