Which term describes the EMH argument that concerns the effect of information disclosure on prices?

Which term describes the EMH argument that concerns the effect of information disclosure on prices?

• A. Information Disclosure Effect
• B. January Effect
• C. Market (Over)sensitivity to information disclosure
• D. Mean Reversion

Answer: (A)

Information about public disclosures is quickly incorporated into prices in an efficient market. When new information becomes public, investors update their expectations about a security’s future cash flows, and prices adjust to reflect this revised view. The term that captures this immediate price response to information disclosure is the Information Disclosure Effect. The other options don’t name this specific mechanism: the January Effect cites a calendar anomaly, Mean Reversion refers to prices drifting back to a long-run average rather than reacting to new information, and a generic phrase about market sensitivity to disclosure isn’t a standard label for this EMH-driven price-change process.

Information about public disclosures is quickly incorporated into prices in an efficient market. When new information becomes public, investors update their expectations about a security’s future cash flows, and prices adjust to reflect this revised view. The term that captures this immediate price response to information disclosure is the Information Disclosure Effect. The other options don’t name this specific mechanism: the January Effect cites a calendar anomaly, Mean Reversion refers to prices drifting back to a long-run average rather than reacting to new information, and a generic phrase about market sensitivity to disclosure isn’t a standard label for this EMH-driven price-change process.