If a corporation announces that it expects quarterly earnings to increase by 25% and it actually sees an increase of 22%, what should happen to the price of the corporation's stock if the efficient markets hypothesis holds, everything else held constant?
Answer: The stock's price should fall. The price had adjusted based on the statement of expected earnings. When the actual number turned out to be lower than expected, the stock price changes to reflect the additional information.
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MB Chapter 7
- _______ and ________ may provide an explanation for stock market bubbles.
- Psychologists have found that people tend to be ________ in their own judgments.
- ______ occurs when people are more unhappy when they suffer losses than they are happy when they achieve gains.
- Survey evidence does conclusively show that
- Survey evidence may be a poor guide to market behavior because
- Tests of rational expectations in markets other than financial markets required the use of survey data from market participants. One problem with using survey data is
- Your best friend calls and gives you the latest stock market "hot tip" that he heard at the health club. Should you act on this information? Why or why not?
- In a rational bubble, investors can have ________ expectations.
- A situation when an asset price differs from its fundamental value is
- The tech stock crash of 2000 is evidence in support of
- The efficient markets hypothesis suggests that investors
- The efficient markets hypothesis indicates that investors
- For small investors, the best way to pursue a "buy and hold" strategy is to
- The advantage of a "buy-and-hold strategy" is that
- Which of the following types of information most likely allows the exploitation of a profit opportunity?
- According to the efficient markets hypothesis, purchasing the reports of financial analysts
- The efficient markets hypothesis suggests that allocating your funds in the financial markets on the advice of a financial analyst
- Evidence against market efficiency includes
- Evidence in support of the efficient markets hypothesis includes
- Mean reversion refers to the fact that
- Excessive volatility refers to the fact that
- A phenomenon closely related to market overreaction is
- When a corporation announces a major decline in earnings, the stock price may initially decline significantly and then rise back to normal levels over the next few weeks. This impact is called ________.
- The January effect refers to the fact that
- The small-firm effect refers to the
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