CMA Final · Strategic Financial Management · Efficient Market Hypothesis
A listed company announces a buyback at a premium, and its share price jumps on the announcement day itself and shows no further drift in the following days. Which description of the market's behaviour does this best fit?
The behaviour fits semi-strong form efficiency. The price adjusted fully on the announcement day to the new public information and did not drift afterwards, showing that public news is quickly and completely reflected in prices.
- ASemi-strong form efficiency, since public news was reflected immediatelyCorrect
- BWeak form inefficiency, since price moved on one day
- CStrong form efficiency, since insiders could not gain
- DMarket inefficiency, since price changed at all
Explanation
Rapid, complete adjustment to newly released public information with no later drift is the hallmark of semi-strong efficiency. A price move on news does not indicate inefficiency. Strong form would concern private information, which this case does not test.
Did you get it right without looking?
One question tells you little. A timed set on Efficient Market Hypothesis shows your real accuracy, how long you take and where you lose marks.
More Efficient Market Hypothesis questions
- Under the semi-strong form of the Efficient Market Hypothesis, a company announces an unexpectedly high dividend increase. Which price behav…
- A mutual fund manager claims skill. Over a period the fund earned 17%, with Rf 7%, market return 14% and fund beta 1.3. A market-efficiency …
- In an event study of a bonus announcement by Sunrise Textiles, the actual returns and the market-model expected returns over a three-day win…
- Studies of mutual fund performance in a market find that fund managers who analyse only published balance sheets, ratio trends and past pric…
- An analyst studies 200 listed Indian companies and finds that after quarterly results are announced, share prices adjust fully within minute…
- Shares of Kaveri Motors were expected to give a return of 12% for a day, based on the market model. On the day of a bonus announcement, the …