Question

The earnings surprise anomaly is an example of: a. strong from efficiency b. conservatism c. representativeness

The earnings surprise anomaly is an example of:

a. strong from efficiency

b. conservatism

c. representativeness

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Answer #1

Option a, Strong form efficiency assumes that all information, public and private are reflected in stock prices. So, it is not possible to use insider trading to beat the market.

Option b, conservatism is a market bias where investors make decisions on old information over new data.

Option c, representativeness is a anamalous stock market behaviour where investors over-react to to surprise earnings announcement.

Hence, the answer is option c.

In case of any query, kindly comment on the solution.

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