Aerotech, an aerospace technology research firm, announced this morning that its hired the world's most knowledgeable and prolific space researchers. Before today, Aerotech's stock had been selling for $100. Assumed that no other information is received over the next week and the stock market as a whole does not move.
a) What do you expect will happen to Aerotech's stock?
b) Consider the following scenarios:
i) The stock price jumps to $118 on the day of the announcement. In the subsequent days, it floats up to $116
ii) The stock price jumps to $116 and remains at that level.
iii) The stock price gradually climbs to $116 over the next week.
c) Which of these scenarios indicates market efficiency? which don not? why?