Evidence concerning the "overreaction hypothesis" indicates that
A)most overreactions occur within the first two days of an economic event.
B)investors are consistently risk-averse value maximizers.
C)the market is even more efficient than the weak-form EMH proposes.
D)investors sometimes act rationally.

Question

Quizplus · Accepted Answer

The "overreaction hypothesis" suggests that investors sometimes act irrationally, leading to temporary mispricing in the market. This means that investors do not always behave as risk-averse value maximizers, and they may overreact to news or events. However, this does not necessarily mean that markets are inefficient beyond what the weak-form EMH proposes. Therefore, the best choice is D, which acknowledges that investors can act rationally or irrationally depending on the situation.

Evidence Concerning the "Overreaction Hypothesis" Indicates That