You own shares in a pharmaceutical company, PillCo. Reading the Yahoo! Finance Web site, you see that PillCo was sued this morning by users of PillCo's new heart drug, Amphlistatin. PillCo's stock has already been trading for a few hours today.
a. When the bad news about the lawsuits came out, what probably happened to the price of PillCo shares within just a few minutes?
b. According to the efficient markets hypothesis, should you sell your shares in PillCo now, a few hours after the bad news came out?
c. In many statistical studies of the stock market, the best strategy turns out to be "buy and hold." This means just what it sounds like: You buy a bunch of shares in different companies and hold them through good times and bad.
People often have a tough time with the "bad" part of "holding through good times and bad." What does your answer to part b tell you about this idea?