Question

If the stock market is semi-strong form efficient, which should be the effect of a previously unanticipated announcement that a technology firm has developed a new and unexpected product with a positive net present value, in the absence of any other announcements or market moves: Group of answer choices The firm's stock price increases gradually to a new level. The firm's stock price immediately overshoots, then decreases to the correct level. The firm's stock price increases immediately to a new higher level. The firm's stock price immediately falls, then rises to its original level.

Answer 1

To answer this question we first need to understand the term "semi-strong form efficient", it is a type of efficient market hypothesis(EMH) which tells that the prices of securities adjust quickly to newly available information and here there is no use use of fundamental or technical analysis.

In the above question it is given that the company is launching a new product with a positive NPV which which means the company is expected to gain from the launch of this product in coming years and this is a positive news about the company.

So according to "Semi-strong form efficient" the prices after this news will shoot up immediately and it will decrease to the correct level after a few days.

Hence, Second Option is correct here.