''It shouldnt work, yet the record is robust. Stocks that have risen in the past, tend to keep rising, on average, for the next several months. stocks that have done poorly, tend to keep failing. This is called momentum. The momentum factor has proven robust over 200 years, out of sample and across markets and geographies. Roughly, it may deliver a return about 10% higher than the market per year, based on history, before taxes and fees.''

Required

Determine which forms of the efficient markets hypotheses is contradicted by a momentum strategy whereby investors can use past stock returns to form a portfolio with positive alpha. [12marks]