Question

88) During the financial crisis, every stock return is negative. In this case, _____

One may still trade on the momentum strategy and earn positive return by buying stocks with smaller negative returns and short selling stocks with large negative returns

The momentum strategy cannot deliver positive return because every stock return is negative

Not feasible to trade on the buy-winner-and-sell-loser momentum strategy because there are no winner stocks to buy

None of the above

Answer 1

Momentum strategy can be useful in the financial crisis as well because one may be interesting into the short selling contracts and selling the shares on the downside can make a lot of money because they are first to ride the momentum of the downside.

buying winners and selling losers is not a principle applicable because all the shares are going down so short selling will be required which is done through momentum trading.

Correct answer is option ( A) one May still trade on the momentum strategy and earn positive returns by buying stock with small and negative return and short selling stocks with larger negative returns.