Response to the following problem:
Efficient Market Hypothesis
Aerotech, a Chinese aerospace technology research firm, announced this morning that it has hired the world's most knowledgeable and prolific space researchers. Before today, Aerotech's equity had been selling for RMB100. Assume that no other information is received over the next week, and the Chinese stock market as a whole does not move.
a. What do you expect will happen to Aerotech's share price?
b. Consider the following scenarios:
c. The share price jumps to RMB118 on the day of the announcement. In subsequent days it floats up to RMB123, then falls back to RMB116.
i. The share price jumps to RMB116 and remains at that level.
ii. The share price gradually climbs to RMB116 over the next week.
iii. Which scenario(s) indicate market efficiency? Which do not? Why?