CFA Practice Question

There are 275 practice questions for this study session.

CFA Practice Question

Under the semi-strong form of the EMH, a company announcing stronger-than-expected earnings would present most investors with what type of abnormal profit opportunity?
A. No profit opportunity, because prices will adjust rapidly to the information.
B. No profit opportunity for small investors but the potential for modest profit for large, sophisticated investors such as mutual funds.
C. The potential for a modest profit as long as the investor acts within one or two hours.
Explanation: With semi-strong form efficiency, prices will adjust rapidly to new information, so by the time most investors have heard the earnings announcement and made decisions about their trading activity, the price will have already adjusted, thus eliminating the profit opportunity.

User Contributed Comments 8

User Comment
murli Good one. Important to note is that under Semi-strong, price adjust rapidly to new info, so no profit opportunity, while opportunity exists if the better than expected result is predicted by the invstor.
murli Again, as per Semi strong - no opportunity exists, but tests proved opportunity exists based on non-consensus projections.
murli There will be abnormal price change on announcement, but no profit opportunity, Is it correct?
haarlemmer In reality, you got 20-40 seconds to react on the news. hehe
eddeb couldn't agree more lol
CoffeeGirl under semi-strong: price is rapidly adjusted to the public information, which the announcement is public info. Thus, no abnormal profit can be made
whoi generalised answer, there's most of the time a tiny little chance of opportunity as haarlemmer correctly wrote
edrei7 There is a little chance of opportunity in reality, thereby a flaw in the "efficiency" of the semi-strong form. But the question is about the hypothesis itself, in its purest assumption.
You need to log in first to add your comment.