Shareholders discount many corporate announcements because of their prior expectations.If an announcement causes the price to change it will mostly be driven by:
A)the expected part of the announcement.
B)market inefficiency.
C)the unexpected part of the announcement.
D)the systematic risk.
E)None of the above.

Question

Quizplus · Accepted Answer

Shareholders typically have prior expectations for corporate announcements and therefore discount them accordingly. If an announcement causes a change in price, it is likely due to the unexpected part of the announcement, as the market has already factored in the expected part. Therefore, option C - the unexpected part of the announcement - is the best choice. Market inefficiency and systematic risk could play a role in price changes, but they are not necessarily the primary drivers in this situation.

Shareholders Discount Many Corporate Announcements Because of Their Prior Expectations