ECON 3420 Discussion 3

ECON 3420 Discussion 3 - DiscussionReport 1. What do you...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
Discussion Report 1. What do you expect to happen to stock price if some good news about future earnings breaks out (for example, a drug company has found a new drug successful in curing certain disease)? Trace the actions of the traders after the news. What would have been different if the news were known to a small group of investors in the beginning. What does EMH have to say about this? If some good news about future earnings breaks out, the expected future price will go up so every investor will buy the stock. Instantaneously, the stock price will increase to a higher level and keep stable. According to EMH, current price fully involves all available information, including the good news. When no information breaks out, price should keep stable and the traders have no intention to change their portfolios. If the news were known only to a small group of investors, our group members believe we should discuss the issue in two different situations. If the Strong Form EMH holds, stock price will reflect private information besides public information. Then it would not be any difference between two cases: the price will take quantum jumps and keep stable. If the Strong Form EMH does not hold, the small group of investors will take advantage of the information to buy the stock and gain huge profit. They will push up the price gradually until the new equilibrium. If only two or three insiders get the news and they don’t have lots of available funds, the stock price may rise slowly. If there are more insiders who have abundant funds at hand, the price may rise quickly. 9 2. The Hong Kong Stock Exchange recently passed a new regulation to the effect 1
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 3

ECON 3420 Discussion 3 - DiscussionReport 1. What do you...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online