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2. Suppose Momentum can generate alpha in a model. It is against which form of market...

2. Suppose Momentum can generate alpha in a model. It is against which form of market efficiency?

A. Strong Form

B. Semi-strong Form

C. Weak Form

D. All three forms

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Answer #1

C. Weak form of efficient market

Weak form of Efficient Market Hypothesis (EMH) suggests that past prices are not determinant of future prices. And that there is no correlation between price of an asset in market today and tomorrow.

Momentum, per investopedia definition, refers to the tendency for price to move in the direction of the trend. This means momentum relies or talks about some correlation between the prices observed today and prices that would be observed tomorrow. This directly violates Weak Efficient Market. Hence, the option C.

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