The three different forms of market efficiency

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2-9 Describe the three different forms of market efficiency.

2-10 Investors expect a company to announce a 10% increase in earnings; instead, the company announces a 1% increase. If the market is semi-strong form efficient, which of the follow- ing would you expect to happen? (Hint: Refer to Footnote 13 in this chapter.)

a. The stock's price will increase slightly because the company had a slight increase in earnings.

b. The stock's price will fall because the earnings increase was less than expected.

c. The stock's price will stay the same because earnings announcements have no effect if the market is semi-strong form efficient.

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