Question

You own stock in XYZ company which operates in the pharmaceutical industry. This company is on...

You own stock in XYZ company which operates in the pharmaceutical industry. This company is on the verge of a drug that can revolutionize cancer treatment and this information has just been released to the public. However, the stock price decreased in spite of the "good news" signal. In other words, the movement of the stock price was not consistent with expectations. This is an example of:

Group of answer choices

Strong form market efficiency

Semi strong form market efficiency

Weak form market efficiency

Cannot be determined from the given information

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Answer #1

This is an example of Strong Form of Market Efficiency as strong form efficency is the most stringent version of the efficient market hypothesis investment theory,stating that all information in the market,wheather public or private, is accounted for in a stock's price

In this case,The stock price decreased on the even good news that reflect that even these information were earlier discounted in the price.So it can be said to be a strong form of market efficiency.When the news came out, The investors started to book their profits.

Rest of the options are false as Semi Strong Form market efficiency advocates that market reacts to new informations while weak form of market efficiency advocates that no private or public information are discounted in the price and market behaves irrationally.

So,the correct option is (A) strong form of market efficiency.

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