Last week, Newtown Plastics announced that it had developed a new plastic container that is stronger and more durable, yet easier to recycle. In response to this announcement, the firm's stock price rose from $21 a share to a high of $27 a share and has remained at that level. This is an example of a(n):
A)overreaction and correction.
B)post-activity reaction.
C)delayed reaction.
D)pre-activity action.
E)efficient market reaction.

Question

Quizplus · Accepted Answer

This is an example of an efficient market reaction, as the announcement of a new, more durable and recyclable product is likely to have a positive impact on the firm's financial performance and therefore, investors reacted by buying shares and increasing the stock price. The fact that the stock price remained at the high level indicates that the market responded efficiently to the news.

Last Week, Newtown Plastics Announced That It Had Developed a New