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A listed company has recently announced a profit warning.
The company's share price fell 20% on the day of the announcement but had been fairly static in the weeks leading up to the announcement.
Which form of efficient market is most likely to be indicated by this share price movement?
Suggested Answer: B
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11 comments · newest first
KR
Kris
12 months ago
Surprised by the 20% drop, that's a huge reaction!
OC
Ocie
12 months ago
I think it's weak form, past prices shouldn't affect new info.
CA
Carissa
1 year ago
Wait, how can it be semi-strong if the price was static before?
LA
Larae
1 year ago
Agreed, the drop shows the market's efficiency.
MY
Myong
1 year ago
Definitely semi-strong form, the market reacted to new info.
GO
Golda
1 year ago
I thought the strong form was about all information being reflected in prices, but this situation seems more about public news affecting the price, so maybe semi-strong?
GA
Gail
1 year ago
This reminds me of a practice question we did on market reactions to earnings announcements. I think the semi-strong form fits best since the share price dropped after the profit warning.
JA
Janessa
1 year ago
I remember studying the efficient market hypothesis, and I think the semi-strong form might be relevant here since the price reacted sharply to new public information.
DE
Deeann
1 year ago
I'm a bit unsure, but I feel like the weak form wouldn't apply since the price movement seems to reflect new information rather than just past prices.
FR
Freeman
1 year ago
Mnemonics are super helpful for remembering tricky concepts like this. I'm glad the teacher came up with a fun one to make it easier to recall.
CR
Craig
1 year ago
Okay, let me think this through. The case feed is a specific feature, so it's probably not about switching to standard detail pages. I'll rule out D and focus on the other options.