Sometimes One Observes That the Price of a Company's Stock

question 23

Multiple Choice

Sometimes one observes that the price of a company's stock falls after the announcement of favorable earnings.This phenomenon is

• A) clearly inconsistent with the efficient market hypothesis.
• B) consistent with the efficient market hypothesis if the earnings were not as high as anticipated.
• C) consistent with the efficient market hypothesis if the earnings were not as low as anticipated.
• D) the result of none of the above.

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Definitions:

IFRS

International Financial Reporting Standards, a set of accounting standards for financial reporting that is accepted globally.

Statement of Changes

A financial document that outlines the reasons for changes in equity, including transactions with owners and comprehensive income, over a period.

Retained Earnings

The portion of net earnings not paid out as dividends, but retained by the company to be reinvested in its core business or to pay debt.

Shareholders' Equity

The residual interest in the assets of an entity after deducting liabilities, reflecting ownership value.