8. The efficient markets hypothesis True or False: The efficent markets hypothesis holds only if all investors are rational. True False Aimost all financial theory and decision models assume that the financial markets are efficient. The informabional cfficiency of financial markets determines the ability of investors to "beat" the market and earn excess (or abnormal) returns on their investments. If the markets are efficient, they will react rapidiy as new relevant information becomes available. Financial theorists have identified three levels of informational efficlency that reflect what information is incorporated in stock prices. Identify the form of capital market effiency under the efficient market hypothesis described in the following statement: Current market prices reflect all relevant publicly avaliable information. This statement is consistent with: Semistrong form efficiency Weak form effioency strong form efficiency Conaider that there is a weak form of effiency in the markets. A pharmackubcai company announces that it has received Federat Orvg Administration approval for a new allergy drug that completely prevents hay A pharmaceutical company announces that it has recelved Federal Drug Administration approval for a new allergy drug that completely prevents hay fever. The consensus analyst forecast for the compary's earnings per share (EPS) is $4,50, but insiders know that, with this new drug, eamings will increase and drive the EPS to $5.00. What will happen when the company releases its next earnings report? There will be some volatality in the stock price when the earnings report is released, but it is difficuit to determine the impact on the stock price. However, the prices will eventually adjust to the news announcement. The stock price wall increase and settie at a new equalbrium level