Assume that a company announces unexpectedly high earnings in a particular quarter. In an efficient market one might expect _____________.

Asked 7 months ago

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a. an abnormal price change immediately after the announcement
b. an abnormal price increase immediately before the announcement
c. an abnormal price decrease immediately after the announcement
d. no abnormal price change immediately before or after the announcement

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Answer: a. an abnormal price change immediately after the announcement

Explanation:

In an efficient market, information is disseminated to participants at the same time which means that there isn't a chance for arbitrage. In such a market therefore, the prices of shares will reflect the information in the market.

In the above scenario, if the company shares such news, the share price of the company will react by changing in an abnormal way in other to match this unexpected news.

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Eliseo Kub

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answered 7 months ago

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