hw6f.docx - Jaegook Lee G26205244 Due Prof Jones Homework 6...

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Jaegook Lee G26205244 Due: 4/17/2018 Prof. Jones Homework 6 1. A firm makes an announcement about the introduction of a new product. The new product is expected to be popular and profitable. Address the following in a paragraph. a) Will the firm’s stock price go up or down? The price of stock will go up. a b) How fast will the firm’s stock price adjust to the new information? As soon as the information is presented to the public, the stock price will be adjusted instantly. c) Why does the price move at that speed? In particular, in terms of the behavior of investors, what would happen if the stock price adjusted at a different speed? Prudent investors would buy or sell stocks quickly as soon as new information comes in, by predicting the future trend in price of stocks and by judging whether or not the information is influential to the price. Therefore, investors should be willing to react to the information as soon as possible not to lose or to make money from the impact of the information available. In this semi-efficiency form market theory, investors who have inside information should make money, by using information unavailable to the public. If the stock price adjusted at a slow speed, that indicates either market efficiency is low (mispriced) or the impact of the information is minimal. In either case, there is a possibility where superior investors can profit by analyzing the current information and patterns or finding new information.
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