Consider that there is a semistrong-form of efficiency in the markets.
A pharmaceutical company announces that it has received Federal Drug Administration approval for a new allergy drug that completely prevents hay fever. The consensus analyst forecast for the company's earnings per share (EPS) is $4.50, but insiders know that, with this new drug, earnings will increase and drive the EPS to $5.00. What will happen when the company releases its next earnings report?
A. The stock price will not change, because the market already incorporated that information in the stock price when the announcement was made.
B. There will be some volatility in the stock price when the earnings report is released; it is difficult to determine the impact on the stock price.
C. The stock price will increase and settle a new equilibrium level.