Price momentum:
This involves selecting stocks that have shown strong price performance over a specific period. The basic idea is that stocks that have performed well in the recent past will continue to do so in the near future. This strategy is based on the tendency of stock prices to exhibit persistence, where the momentum effect suggests that trends in price movements can continue for some time.
For example, a price momentum strategy might involve looking at the top 10% of stocks based on their returns over the last 6 to 12 months and then investing in those stocks. Investors using this approach believe that the positive price trends are likely to persist due to factors like market sentiment, investor behavior, or continued strong fundamentals.
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