Question

Let's say United Airlines experienced two plane crashes, United's stock price dropped substantially. Assume that the market is expected United to settle all the expected litigation costs for around $10 billion. Assume that the Justice Dept announces a final settlement with United for $10 billion. Assuming that the markets are semi-strong form efficient, how will the United stock price respond to this settlement announcement?

Answer 1

Since the settlement is at par with the market expectations, there would be no further change in the stock'a price since it can be considered as a public information previously anticipated by the whole market and Semi-strong form efficiency is an aspect of the Efficient Market Hypothesis (EMH) that assumes that current stock prices adjust rapidly to the release of all new public information which it had already.

Please do rate me and mention doubts, if any, in the comments section.