Suppose firms with unexpectedly high earnings earn abnormally high returns for several months after the earnings announcement.This would be evidence of:
A)efficient markets in the weak form.
B)inefficient markets in the weak form.
C)efficient markets in the semistrong form.
D)inefficient markets in the semistrong form.
E)inefficient markets in the strong form.

Question

Quizplus · Accepted Answer

If firms with unexpectedly high earnings continue to earn abnormally high returns for several months after the earnings announcement, it suggests that the market is not fully incorporating this publicly available information into stock prices immediately. This indicates inefficiency in the semistrong form, where all publicly available information should already be reflected in stock prices.

Suppose Firms with Unexpectedly High Earnings Earn Abnormally High Returns