The following diagram shows the cumulative abnormal (CAR) for oil exploration co

Question

The following diagram shows the cumulative abnormal (CAR) for oil exploration companies announcing oil discoveries over a 30 year period. month 0 in the diagram is the announcement month. Assume that no other information is received and the stock market as a whole does not move. is the diagram consistent with market efficiency? Why or why not ? Nov 14 Nov 15 Nov 16 Nov 17 Nov 18 Nov 19 -0.1 0.1 0.9 0.2 0.2 0.3 1.1 1.8 0.1 0.7 0.3 0.0 0.2 lative Abnormal Returns (LO2, CFA2) The following diagram shows thec mal returns (CAR) for oil exploration companies announcing oil discoveries ove Month 0 in the diagram is the announcement month. Assume that no other info ed and the stock market as a whole does not move. Is the diagram consistent wit ncy? Why or why not? 15% - 10% - -5% -6 4 -2 02 4 6 8 Time in months relative to event month lative Abnormal Returns (LO2, CFA2) The following figures present the results mulative abnormal returns (CAR) studies. Indicate whether ect, or are inconclusive about the semistrong form of the efficient markets hypothes gure, time 0 is the date of an event. the results of each study

Explanation / Answer

Yes, the diagram is consistent with market effeciemcy as the value is low in months preceeding the event and as the event day approaches and passes by (month 0) the value increases rapidly and gradually decreases as the time since the event's occurence elapses

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