The Impact of Public Announcements on the Stock Prices

1774 Words Feb 24th, 2018 7 Pages
In an ideal market the price would provide accurate signals for allocation of resources. Ideal market is one in which firm’s production-investment decisions and investor’s decision regarding securities will depend on the assumption that the security prices fully reflect available information at any point in time. A market in which prices always “fully reflect” available information is called efficient.1
Anamika Sharma (2009) conducted a study to investigate the impact of public announcement of open offer by testing the semi-strong form of efficiency to draw inferences on the efficiency of stock market through market-adjusted abnormal model. The results of the study support that stock market is not efficient in semi-strong form and that open offer created a substantial value for shareholders of company during the study period.2
S. Basu (1997) tested for the information content of price-earnings multiple. He tested to see whether low P/E stocks outperform stocks with high P/E ratios. If historical P/E ratios provided useful information for obtaining higher stock returns then it would be refutation of semi strong form of efficient market hypothesis. His results indicated that low P/E portfolios provided superior returns relative to the market and high P/E provided inferior returns relative to the market. The results reported in this paper indicate that P/E ratio information was not fully…
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