Fundamental analysis shows that Quadrangle Company is fairly valued. Then Quadrangle Company unexpectedly improves its production techniques and unexpectedly hires a new CEO away from another very successful competitor. Suppose this has no effect on the price of the stock of Quadrangle Company.
A)Fundamental analysis would now show the corporation is overvalued.The fact that the price was unchanged is consistent with the efficient markets hypothesis.
B)Fundamental analysis would now show the corporation is overvalued.The fact that the price was unchanged is not consistent with the efficient markets hypothesis.
C)Fundamental analysis would now show the corporation is undervalued.The fact that the price was unchanged is consistent with the efficient markets hypothesis.
D)Fundamental analysis would now show the corporation is undervalued.The fact that the price was unchanged is not consistent with the efficient markets hypothesis.

Question

Quizplus · Accepted Answer

Improvements in production techniques and hiring a successful CEO are positive developments that should increase the company's value. If the stock price remains unchanged despite these improvements, fundamental analysis would likely show the company is undervalued. The fact that the stock price did not adjust to reflect this new, positive information suggests the market is not efficiently incorporating all available information, which contradicts the efficient markets hypothesis.

Fundamental Analysis Shows That Quadrangle Company Is Fairly Valued