CFA Practice Question

There are 275 practice questions for this study session.

CFA Practice Question

One reason for expecting a price increase is that companies typically raise their dividends when they split their stock. The dividend change has an information effect that the company will have a new, higher level of earnings in the future. A stock split may signal a good investment in the stock. This anomaly would contradict the ______ form of the efficient market hypothesis.

A. weak
B. semi-strong
C. strong
Correct Answer: B

The news of stock splits is public information. However, since nothing fundamentally affecting the value of the firm has occurred, most studies attribute no short-run or long-run positive impact on security returns because of a stock split.

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