Which one of the following statements is correct?
A)The weekend effect states that security prices tend to rise between Friday afternoon and Monday morning.
B)The market responds immediately to reflect the information contained in quarterly earnings reports.
C)Low P/E stocks tend to outperform high P/E stocks on a risk-adjusted basis.
D)The market fully anticipates the information contained in an earnings announcement prior to the actual announcement.

Question

Quizplus · Accepted Answer

Research has shown that over the long-term, stocks with low P/E ratios outperform high P/E stocks on a risk-adjusted basis. The weekend effect (A) does not hold true in all cases and can be influenced by a variety of factors. The market may respond immediately to earnings reports (B), but the extent of the response depends on the magnitude of the surprise in the report. In addition, the market does not always fully anticipate the information in earnings announcements (D) and surprises can lead to significant movement in stock prices.

Which One of the Following Statements Is Correct