Question

the chairman of the fed announced the wall street journal that we are in a recession. can you earn abnormal return by investing after you have read the announcement?

Answer 1

No, abnormal returns can be generated if you have an information which is not in the public domain yet. Even though it may be unethical to use the confedential non public information, the use of such information can generate abnormal return and questions the efficiency of the market. However, in the case given the chairman of the fed has already announced in a public jounal (wall street journal) that we are in a recession. The markets would have priced this announcement as soon as it became public and would have adjusted accordingly. No scope remains now to generate abnormal return once the market adjusts. Answer

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