The following graph represents the Cumulative Average Abnormal Return (CAAR) for the stocks of companies targeted for take-over. Which of the following statements is true? a.In a weak form efficient market, t* is the actual takeover event (i.e. the time when the legal takeover transaction is completed) b.In a semi-strong form efficient market, t* is the takeover announcement event c.In a strong form efficient market, t* is the acquiring company takeover decision event (i.e. the time when an acquiring company decides to launch a takeover) d.(a) & (b) e.(b) & (c) CAAR0t*event time

An efficient market is a financial market where asset prices rapidly and accurately reflect all…

Answered: The following graph represents the…

Survey of Accounting (Accounting I)

8th Edition

ISBN:9781305961883

Author:Carl Warren

Publisher:Carl Warren

Chapter11: Cost-volume-profit Analysis

Section: Chapter Questions

Problem 11.18E

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The following graph represents the Cumulative Average Abnormal Return (CAAR) for the stocks of companies targeted for take-over.

Which of the following statements is true?

	a.	In a weak form efficient market, t* is the actual takeover event (i.e. the time when the legal takeover transaction is completed)
	b.	In a semi-strong form efficient market, t* is the takeover announcement event
	c.	In a strong form efficient market, t* is the acquiring company takeover decision event (i.e. the time when an acquiring company decides to launch a takeover)
	d.	(a) & (b)
	e.	(b) & (c)

Definition Definition Degree to which financial markets incorporate all available information into the prices of assets. In a more efficient market, the prices reflect the available information more than that in a weak efficient market. It is difficult for investors to outperform the market in a strong efficient market. This is because all the available information is already discounted in the asset's price. However, in a weak-form efficiency, the market does not reflect all information in the asset's price. As a result, it becomes easier to generate better returns in a weak form or an inefficient market.

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