Which statement is correct?
A) The momentum factor refers to the tendency for stock price changes to reverse.
B) The momentum factor refers to the tendency for stock price changes to persist for a while and then revert.
C) The momentum factor implies that stock prices are rather like a pendulum.
D) The momentum factor is inconsistent with the strong form of the efficient market hypothesis.

Question

Quizplus · Accepted Answer

The momentum factor refers to the tendency for stock price changes to persist for a while and then revert. This means that stocks that have been performing well are likely to continue to perform well for a period, while stocks that have been doing poorly are likely to continue to do poorly for a while. This contradicts the strong form of the efficient market hypothesis, which suggests that stock prices always reflect all available information.

Which Statement Is Correct