Which EMH critique suggests markets react too strongly or too weakly to new information?

Which EMH critique suggests markets react too strongly or too weakly to new information?

• A. Market (Over)sensitivity to information disclosure
• B. Information Disclosure Effect
• C. January Effect
• D. Small Firm Effect

Answer: (A)

Markets' reactions to new information can be excessive or insufficient, meaning prices may overreact or underreact when news hits. This EMH critique points to how investors’ biases, information processing delays, and limits to arbitrage can prevent prices from adjusting instantly to new data, creating short‑term patterns like momentum after good news or a slower absorption of information after other news. The idea is captured by thinking of Market (Over)sensitivity to information disclosure, which describes this tendency directly. The other options refer to calendar or size effects or to less standard terms that don’t specifically address the reaction to new information.

Markets' reactions to new information can be excessive or insufficient, meaning prices may overreact or underreact when news hits. This EMH critique points to how investors’ biases, information processing delays, and limits to arbitrage can prevent prices from adjusting instantly to new data, creating short‑term patterns like momentum after good news or a slower absorption of information after other news. The idea is captured by thinking of Market (Over)sensitivity to information disclosure, which describes this tendency directly. The other options refer to calendar or size effects or to less standard terms that don’t specifically address the reaction to new information.