Corporate Finance
Corporate Finance
3rd Edition
ISBN: 9780132992473
Author: Jonathan Berk, Peter DeMarzo
Publisher: Prentice Hall
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Chapter 13, Problem 1P

Assume that all investors have the same information and care only about expected return and volatility. If new information arrives about one stock, can this information affect the price and return of other stocks? If so, explain why?

Expert Solution & Answer
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Summary Introduction

To determine: To respond to the given statement.

Statement: Can the stock prices and stock returns affect if any new information arrives regarding the stock?

Introduction: Expected return is the method of finding the average anticipated probability of several diverse interest rates that are probable on a particular asset. The issues in such persistence comprise of dissimilar market environments that includes the beta of an asset.

Answer to Problem 1P

Answer: Yes, the stock prices and stock returns affect if any new information arrives regarding the stock.

Explanation of Solution

Yes, the stock prices and stock returns affect if any new information arrives regarding the stock.

Following are the reasons that suggest that the stock prices and stock returns affect if any new information arrives regarding the stock:

  • If the other stock prices remain constant, the shareholders will prefer to raise the weight of the stock by indicating not to hold the market portfolio.
  • As a result of the arrival of new information, it modifies the stock’s appearance.

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When all investors have the same information and care only about expected return and volatility; if new information arrives about one stock, can this information affect the price and return of other stocks?
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