CFA Practice Question

There are 275 practice questions for this study session.

CFA Practice Question

The existence of momentum is ______.
A. rational
B. not true
C. contrary to market efficiency
Explanation: Having stocks with some degree of momentum in their prices may reflect prices adjusting to a shock in growth rates.

User Contributed Comments 6

User Comment
aedius Another question where theory doesn't quite work so well in reality. Momentum stocks during the Internet tech bubble was anything but "rational."
CJPerugini Wouldn't the explanation be contrary to market efficiency then? If there is a shock in growth rates, prices should rapidly adjust to accurately reflect projected returns.
psahni85 Wouldn't momentum mean, I'm buying/selling because everyone else is buying/selling? How's that rational?
littlecow Something seems irrational to you may be totally rational to others. In this case people are following rules to trade - rational behavior instead of investing randomly.
lighty0770 I dont think market momentum is necessarily rational, it is a market anomaly, which I would then say that it is contrary to market efficiency, or am I way off base with that thought process?
dbalakos I totally thought the same thing lighty0770
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