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Suppose that firms that announce bad news during the first quarter generally experience negative abnormal returns...

Suppose that firms that announce bad news during the first quarter generally experience negative abnormal returns during the second quarter.

Question: Explain whether that would be a violation of the efficient market hypothesis.

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Answer #1

The above statement is not violation of efficient market hypothesis as it states that share prices reflect all information and thus when bad news are released it creates spill over effects in resulting or forthcoming quarter which leads to abnormal negative returns in share prices and thus they trade at fair market values.

Thus share prices factor in the news and thus pass it onto as fall in prices for shareholders.

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