Mechanistic hypothesis and efficient market hypothesis 

Due to a change of accounting standards Lily Ltd reclassified some of its financial instruments in preparing its financial statements for the year ended \(30 \mathrm{June} 2024\). The fair value of the financial instruments actually declined by \(\$ 2000000\). The effect of the reclassification was that changes in the fair value of the financial instruments were no longer recognised in the financial statements and this enabled Lily Ltd to report a profit of \(\$ 6000\) 000 , which was an increase of \(5 \%\) over the previous year's profit. The amount of the decline in the fair value of the financial instruments was disclosed in the notes to the financial statements.

Required 

1. What does the mechanistic hypothesis predict about how investors and, therefore, share prices will respond to information about the profit reported in Lily Ltd's 2024 financial statements?

2. Distinguish between the mechanistic hypothesis and the semi-strong form of market efficiency. What does the efficient market hypothesis predict about how investors and, therefore, share prices will respond to information about the profit reported in Lily Ltd's 2024 financial statements?