A key requirement for efficient capital markets is that prices fully and instantaneously reflect all available relevant information. Consider the event of an earnings announcement. Suppose that the current price of a stock is 100. Sketch a stock price process for ±5 days around the event (using end of day prices) to reflect:

a. an efficient capital market when the announcement is i. a positive surprise with +5% price effect ii. a negative surprise with −5% price effect iii. neutral (i.e., according to analyst expectations) with no price effect

b. leakage of information before the event day when the surprise is i. positive (+5%) ii. negative (−5%)

c. a price process as in (a) when the full price adjustment takes place over a few days after the event.