Mechanistic hypothesis and efficient market hypothesis   LO5 Due to a change of accounting standards Adele Ltd reclassified some of its financial instruments in preparing its financial statements for the year ended 30 June 2019. The fair value of the financial instruments actually declined by $1 000 000. 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 Adele Ltd to report a profit of $3 000 000, 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 Adele Ltd’s 2019 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 Adele Ltd’s 2019 financial statements?