Assume that a company announces unexpectedly high earnings in a particular quarter.In an efficient market one might expect _____________.
A) an abnormal price change immediately following the announcement
B) an abnormal price increase before the announcement
C) an abnormal price decrease after the announcement
D) no abnormal price change before or after the announcement

Question

Quizplus · Accepted Answer

In an efficient market, all available information is already reflected in the current stock price. Therefore, unexpected news such as unexpectedly high earnings for a particular quarter should lead to an abnormal price change immediately following the announcement. A decrease in price or no change at all would suggest that the market was not efficient or did not fully incorporate the news into the stock price. An abnormal price increase before the announcement would suggest insider trading or other forms of market inefficiency.

Assume That a Company Announces Unexpectedly High Earnings in a Particular