Current market prices reflect all relevant information, whether it is known publicly or privately.

This statement is consistent with:

Semistrong$-$form efficiency

Strong$-$form efficlency

Weak$-$form efficiency

Consider that there is a weak form of efficiency in the markets.

A pharmaceutical company announces that it has received Federal Drug Administration approval for a new allergy

drug that completely prevents hay fever. The consensus analyst forecast for the company's earnings per share $($EPS$)$

is $$4\mathrm{.}50,$ but insiders know that, with this new drug, earnings will increase and drive the EPS to $$5\mathrm{.}00.$ What will

happen when the company releases its next earnings report?

The stock price will increase and settle at a new equilibrium level.

O There will be some volatility in the stock price when the earnings report is released, but it is difficult to

determine the impact on the stock price. However, the prices will eventually adjust to the news

announcement.

O The stock price will not change, because the market already incorporated that information in the stock price

when the announcement was made.