Assume That Markets Are Semi-Strong Form Efficient

question 96

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:

Perception

The method through which people arrange and understand their sensory inputs to ascribe significance to the world around them.

Unified Perception

The cognitive process of integrating information from various sources into a coherent whole, as in seeing an object as a single entity despite the disparate sensory inputs.

"Binding Problem"

A term used in neuroscience and cognitive science to describe the challenge of how different aspects of sensory experiences (such as color, shape, location) are combined into a single, integrated perception.

Brain Areas

Specific regions within the brain that have distinct functions or are associated with particular processes such as memory, emotion, or sensory input.