Car Ltd. announced its annual earnings on day 0, which was higher than the analyst- forecasted earnings.
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Question:
Car Ltd. announced its annual earnings on day 0, which was higher than the analyst- forecasted earnings. The total abnormal return of Car Ltd. over the 5-day window (-2, +2) surrounding the earnings announcement was positive. In the absence of any new firm-specific normation following the earnings announcement, a negative total abnormal return to Car was observed over the period of day +3 to +60.
Required:
Explain whether this time pattern of abnormal return is consistent with market efficiency. If not, provide possible explanations for such a price behavior.
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