Question
Decide whether the described phenomenon is a violation of the semi-strong form of the efficient market hypothesis, and why. A bond issued by the Spartan
Decide whether the described phenomenon is a violation of the semi-strong form of the efficient market hypothesis, and why.
A bond issued by the Spartan government is traded on the market. The holder of one unit of the bond has claims to a $1,000 payment from the Spartan government one year later. The bond used to be trading at a price of $990. However, Sparta just lost the war with Athens, so the Spartan government was abolished and thus cannot repay at all. Further, the Athenian government repudiated any liability of the Spartan government. In response to this news, the price of the bond dropped to $400.
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