If the securities markets are efficient, the market’s reaction to new information about a firm’s value (such as an earnings announcement) should be:
a. gradual, as investors rationally deliberate the effect of the information on the stock’s value.
b. immediate and unbiased.
c. slow or fast, depending on the amount of ‘surprise’ contained in the new information.
d. negligible (the information would have already been impounded into the firm’s stock price).
ANSWER
B
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