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11 November, 00:15

2. If the public expects a corporation to lose $5 a share this quarter and it actually loses $4, which is still the largest loss in the history of the company, what does the efficient market hypothesis say will happen to the price of the stock when the $4 loss is announced?

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  1. 11 November, 03:59
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    Price of the stock will rise or increase

    Explanation:

    Efficient market hypothesis states that price of stock factors in all information related to the stock. As such, nobody can take advantage of higher returns offered by a particular stock for a long time.

    In line with efficient market efficiency, if public expected a bigger loss of $5 but loss was only for $4, the price of stock will increase. Though the company still suffers a loss, it is less than what was expected by the market, resulting in increase in stock price.
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