Nicholas Manufacturing just announced yesterday that its 4^th-quarter earnings will be 10% higher than last year's 4^th quarter.You observe that Nicholas had an abnormal return of -1.2% yesterday.This suggests that A) the market is not efficient. B) Nicholas' stock will probably rise in value tomorrow. C) investors expected the earnings increase to be larger than what was actually announced. D) investors expected the earnings increase to be smaller than what was actually announced. E) earnings are expected to decrease next quarter.

Question

Quizplus · Accepted Answer

The abnormal return of -1.2% suggests that investors were expecting a higher earnings increase than what was actually announced. This implies that the market had already priced in higher expectations for Nicholas' earnings, leading to a negative reaction when the earnings increase was not as high as expected. Therefore, the correct answer is C.

Nicholas Manufacturing Just Announced Yesterday That Its 4th-Quarter Earnings Will

Nicholas Manufacturing Just Announced Yesterday That Its 4^th-Quarter Earnings Will