Friday, 28 April 2017

Momentum and Overreaction Anomalies


Investors tend to inflate (depress) stock prices of companies that have released good (bad) news.

Studies have shown that "losers" (stocks that have witnessed a recent price decline due to the release of bad news) have outperformed the market in subsequent periods, while winners have underperformed in subsequent periods.


Other studies have also shown that securities that have outperformed in the short term continue to generate high returns in subsequent periods (carrying on price momentum).

Note:  The overreaction and momentum anomalies go against the assertions of weak-form efficiency in markets.

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