Investor behavior is one important cause of momentum: market participants, driven by basic human emotions such as fear and greed, tend to either overreact or underreact during different time frames. This sustains price trends in an asset class or security. Extreme misreaction can lead to speculative frenzy (an economic bubble), followed eventually by a significant deflation in prices (or popping of the bubble). Examples include the NASDAQ technology bubble of 2000, or more recently the U.S. real estate market.
Momentum based strategies have been...
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