An unbiased reaction is one where there is ___ to the arrival of new information.

A) a slight overreaction
B) a slight underreaction
C) a strong overreaction
D) no overreaction

Question

An unbiased reaction is one where there is ___ to the arrival of new information.

A) a slight overreaction
B) a slight underreaction
C) a strong overreaction
D) no overreaction

Quizplus · Accepted Answer

An unbiased reaction is one where there is no underreaction or overreaction to the arrival of new information.If the market underreacts to the value of new information,then the market price will fall below fundamental value.Profits can be earned by buying the undervalued security.Conversely,if the market overreacts,then profits can be earned by selling or taking a short position in the overvalued security.An underreaction or overreaction is a biased reaction,and is inconsistent with an efficient price reaction.

An Unbiased Reaction Is One Where There Is ___ to the Arrival