1. (6 points) McDonald's recently announced that their average customers per day and total revenue each...

 

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1. (6 points) McDonald's recently announced that their average customers per day and total revenue each increased by 4% in the most recent quarter. The stock price dropped by 3% immediately after the announcement and another 3% over the next two trading days. a) Assuming no other news arrives during this period, briefly explain whether or not this stock price reaction is consistent with efficient markets and why. b) Several of the behavioral biases we discussed in class could explain the reaction of the stock price in the days following the announcement. Pick one relevant bias and briefly describe how it could explain this price reaction. 1. (6 points) McDonald's recently announced that their average customers per day and total revenue each increased by 4% in the most recent quarter. The stock price dropped by 3% immediately after the announcement and another 3% over the next two trading days. a) Assuming no other news arrives during this period, briefly explain whether or not this stock price reaction is consistent with efficient markets and why. b) Several of the behavioral biases we discussed in class could explain the reaction of the stock price in the days following the announcement. Pick one relevant bias and briefly describe how it could explain this price reaction.

Answer rating: 100% (QA)

a The stock price reaction is not consistent with efficient markets because the announcement of an i... View the full answer