The following chart shows the cumulative abnormal returns (CARs) for firms announcing a Seasoned Equity Offering (SEO). [An SEO is issuing of shares by a mature company that already has shares in existence on the stock exchange.]

a) Is this evidence for or against market efficiency? Explain why?

b) Specifically, what would account for the shape of CARs prior to time 0?

CAR around an SEO 35 30 25 20 15 10 30 20 10 0 -10 -20 30 Months relative to announcement CAR around an SEO 35 30 25 20 15 10 30 20 10 0 -10 -20 30 Months relative to announcement