- CFA Exams
- CFA Level I Exam
- Topic 5. Equity Investments
- Learning Module 38. Market Efficiency
- Subject 3. Market Pricing Anomalies
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 |