712 semi strong form the semi strong form of market

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Unformatted text preview: on day t - As there is no significant relationship between the return on successive days, the evidence is supportive of the weak form of market efficiency. 7.1.2 Semi-strong form The semi-strong form of market efficiency states that all publicly available information should be reflected in the current stock price. A common way to test the semi-strong form is to look at how rapid security prices respond to news such as earnings announcements, takeover bids, etc. This is done by examining how releases of news affect abnormal returns where - Abnormal stock return = actual stock return - expected stock return As the semi-strong form of market efficiency predicts that stocks prices should react quickly to the release of new information, one should expect the abnormal stock return to occur around the news release. Figure 7 illustrates the stock price reaction to a news event by plotting the abnormal return around the news release. Prior to the news release the actual stock return is equal to the expected (thus zero abnormal...
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