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Which of the following is/are indicators of market imperfections?
1 Low volume of trading in shares of smaller companies
2 Overreaction to unexpected news
A 1 only
B 2 only
C Both 1 and 2
D Neither 1 nor 2
Sir first of all, i dont understand what does market imperfection mean (i found it no where in the study text)
What does it mean and how these these indicators of market imperfections..
Thanks a lot
This is explained in my free lectures!!
With a perfect market, the share price will always immediately reflect the expected future dividends. In practice the market is not completely perfect and there can be a delay in the share price reacting to new information. Share prices only change when shareholders are buying and selling, and so if there is not much trading in the shares then it will take time for new information to cause a change in the share price.