(Market efficiency—reaction to news) One of the earliest tests of market efficiency was to examine the returns of stocks around the publication of their companies’ earnings reports. The graph below shows the price of XYZ stock 7 days before and after the earnings announcement date (date = 0). Assume that the only new information during this period is the publication of the earnings report showing higher profits than expected. Does the price pattern of XYZ stocks support the concept of market efficiency?

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Price $13.00 $12.50 $12.00- $11.50 $11.00 $10.50 $10.00 $9.50- $9.00 -7 -6 5 XYZ Price Around the Announcement Date 4 1 -1 0 1 2 3 4 5 10 Date 6 7