Suppose in Figure 5-3 that the stock prices of target firms in acquisitions responded to acquisition announcements

Question:

Suppose in Figure 5-3 that the stock prices of target firms in acquisitions responded to acquisition announcements over a three- day period rather than almost instantly.

a. Would you describe such an acquisition market as efficient? Why or why not?

b. Can you think of any trading strategy to take advantage of the delayed price response?

c. If you and many others pursued this trading strategy, what would happen to the price response to acquisition announcements?

d. Some argue that market inefficiencies contain the seeds of their own destruction. In what ways does your answer to this problem illustrate the logic of this statement, if at all?

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