If it takes 10 days for a stock price to correctly respond an event,it might be due to
A) overreaction.
B) under reaction.
C) efficient markets.
D) overreaction and under reaction.
E) under reaction and efficient markets.

Question

Quizplus · Accepted Answer

If it takes 10 days for a stock price to correctly respond to an event, it is likely due to both overreaction and underreaction. In the initial few days, there might be an overreaction to the event, causing an exaggerated movement in the stock price. However, as more information becomes available and the market adjusts, there might be an underreaction, leading to the correction of the stock price over the 10-day period. This suggests that markets are not always efficient and that there may be opportunities to profit from mispricing due to temporary overreactions or underreactions.

If It Takes 10 Days for a Stock Price to Correctly