Question

Assume that all investors have the same information and care only about expected return and volatility. If new information arrives about one​ stock, can this information affect the price and return of other​ stocks? If​ so, explain​ why? If new information arrives about one​ stock, can this information affect the price and return of other​ stocks?

Answer 1

Answer:

Yes

Explanation:

Yes, because with the existence of the new information, there would be changes in attractiveness of the stock. If there are no changes in other stock prices, it, would change the expected return on this stock. If expected return was to go up, then investors would be interested in this stock, implying they would not be holding the market portfolio.

New information regarding stock attracts investors, leading to shift in portfolio of investor. With greater demand for the particular stock, revenues/prices of other stock declines. This is because, investor becomes more attracted to buying that particular stock and other stocks are sold off in the market.