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An over-reaction to news in the stock price followed by a reversal is consistent with: conservatism...

An over-reaction to news in the stock price followed by a reversal is consistent with:

conservatism

strong form efficiency

arbitrage

representativeness
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Answer #1

The correct option is Conservatism

An over-reaction to news in the stock leads to massive surge in price of the stocks more than it's intrinsic worth, due to heavy demand of buying the stocks but when the reversal hits the market it leads to heavy demand of selling the stocks because it leads to uncertainity in the market about the prices and investors wants to encash the securities.

Therefore,it can be said that the reversal of the market followed by over-reaction is consistent with the conservatism.

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