Question16 Semi-strong-form market efficiency suggests security prices will change when: Unexpected earnings results are announced Earnings results are announced Cash flow results are announced All of the given options are correct Only when profits increase compared to last year ResetMaximum marks: 1 Flag question undefined

Question

BlackTom AI · Accepted Answer

To analyze semi-strong-form market efficiency, consider how prices respond to new public information. 
Option 1: Unexpected earnings results are announced. Such results are public information that can surprise the market, leading to rapid price adjustments as investors reassess expected profitability. This aligns with semi-strong efficiency, which posits that prices incorporate all publicly available information. 
Option 2: Earnings results are announced. Even when results are anticipated or ordinary, the act of releasing earnings provides new public data about a firm’s performance, prompting price movements as the information is processed. This follows the same logic of price adjustment to public information. 
Option 3: Cash flow results are announced. Cash flow figures are a key public financial metric. When these are published, they can alter perceptions of a firm’s liquidity and sustainability, inducing price changes consistent with semi-strong efficiency. 
Option 4: All of the given options are correct. Since each of the prior items involves publicly released information that can lead to price revisions, this option captures the comprehensive effect described by semi-strong-form efficiency. 
Option 5: Only when profits increase compared to last year. This is too narrow a view; semi-strong efficiency implies that any new public information—earnings, earnings surprises, or cash flows—can trigger price changes, not just year-over-year profit increases. 
Overall, the reasoning for each item rests on the principle that prices adjust in response to new, publicly available information, whether it comes from earnings announcements or cash flow releases, and not only from a specific type of profit change.

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