Nanotech, a microchip development and research firm, announced this morning that it has hired the world’s most knowledgeable researchers on nanotechnology. Before today, Nanotech’s stock had been selling for $100. Assume that no other information is received over the next week and the stock market as a whole does not move.
a. What do you expect will happen to Nanotech’s stock?
b. Consider the following scenarios:
i. The stock price jumps to $118 on the day of the announcement. In subsequent days it floats up to $123, and then falls back to $116.
ii. The stock price jumps to $116 and remains at that level.
iii. The stock gradually climbs to $116 over the next week.
Which scenario(s) indicate market efficiency? Which do not? Why?

  • CreatedJune 17, 2015
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