Assume That Markets Are Semi-Strong Form Efficient

question 293

Multiple Choice

Assume that markets are semi-strong form efficient. Suppose, then, that during a trading day, important new information is released for the first time concerning a certain company. This information indicates that one of the firm's oil fields, previously thought to be very promising, just came up dry. How would you expect the price of a share of stock to react to this information?

• A) The value of a share will fall over an extended period of time as investors begin to sell shares in the company.
• B) The value of a share will drop immediately to a price that reflects the value of the new information.
• C) The value of a share will fall below what is considered appropriate because of the decreased demand for the shares, but eventually the price will rise to the correct level.
• D) The value of a share will rise over a long period of time as investors sell the stock.
• E) The stock price will not change since this type of information has no impact in markets that are semi-strong form efficient.

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Definitions:

Tone

In communication and literature, the attitude or approach that the author takes toward the work's central theme or subject.

Stimulus Generalization

The tendency for the conditioned response to be evoked by stimuli that are similar to the stimulus to which the response was originally conditioned.

Higher-order Conditioning

A process in classical conditioning by which a stimulus that's associated with a primary conditioned stimulus also becomes a conditioned stimulus.

Stimulus Discrimination

The ability to differentiate between one stimulus and similar stimuli, ensuring that only the original stimulus triggers the conditioned response in classical conditioning.