Question

The tendency of poorly performing stocks and well-performing stocks in one period to continue their performance into the next period is called the ________________.A. fad effectB. martingale effectC. momentum effectD. reversal effect

Answer 1

Answer:

C. momentum effect

Explanation:

it is the tendency of both poorly and we'll performing stock to continue the same trend. It is due to the momentum investors who have the tendency to chase performers. Thus if a stock is performing well, these investors invest more in such stocks and increase the price of the stock further thus keeping the same trend. And if a stock is doing bad, these investors sell this stock decreasing the price of the stock further. Thus they remain as poor performers next period as well