An investment approach that is based on the belief that markets overreact and will eventually self-correct is:
A)technical analysis
B)fundamental analysis
C)passive investment
D)momentum trading
E)contrarian investment.

Question

Quizplus · Accepted Answer

The investment approach that is based on the belief that markets overreact and will eventually self-correct is known as contrarian investment. Contrarian investors go against the crowds and invest in stocks or assets that are currently out of favor with the majority of investors. They believe that over time, the market will eventually recognize the true value of these assets, resulting in a correction in prices. This approach is based on the principle of mean reversion, where prices tend to return to their long-term averages after deviating too far in one direction. This approach is different from technical analysis that focuses on analyzing charts and trends or fundamental analysis that looks at the financial health of a company.

An Investment Approach That Is Based on the Belief That