Question

Why is the momentum effect considered an anomaly?

Answer 1

To answer this let us know what momentum effect is?

Momentum effect refers to the phenomenon where in the shares or stocks which have a higer return in the past based on past macro economic factors, continue to beat the returns of the low return stocks.

Why it is considered an anomaly?

This is because if the market consists of rational investors and the markets are efficient which means they have all types of public of private information incorporated such momentum effect should not be there but as per economists and other analysis such kind of biased effect stays and hence its an anomaly.

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