4. Find an announcement of new information made within a month from today (i.e.,

Question

4. Find an announcement of new information made within a month from today (i.e., earnings announcement, merger, etc.) for any publicly traded stock that moves the stock price at least 1%. Print out or draw a chart that shows at least 2 days before the event and at least one day after. [Note: make sure you find the first announcement of the information.]

(a) Using this chart, analyze if the evidence is consistent with the semi-strong form market efficiency.

(b) Is the stock market reaction consistent with the strong form of market efficiency?

Explanation / Answer

Announcement of “ABC company”:

The company is going for an expansion project of costing $500 million. It increases operation by 20% and profit by 35%.

Such announcement increases stock price in the market by 50%.

a.

This is semi-strong form market efficiency, since the stock price increases immediately after the announcement was made; although they know that they will not get benefit right now. The project will be implemented in future.

b.

Stock market reaction is consistent, because no single investor can make profit over and above the average investor, by the effect of such announcement.

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