Question

Evidence suggests that there may be ___________reversal___________ patterns in stock price behavior.

Answer 1

Answer: c. short-run; long-run

Explanation:

Evidence suggests that there may be short-run momentum and long-run reversal patterns in stock price behavior.

Evidence has suggested that in the short run, stock prices tend to gain momentum and increase prices above their mean however, in the long run these prices stabilize and return to their mean levels.

This has led to the rise of trading strategies like momentum trading which involves looking for stocks that are currently gaining momentum and thus increasing in price, buying them and then selling when they stabilize such that a profit is made.