What characterizes the performance of stocks as per time-series momentum?

• A. Being in the top percentile of all trades
• B. Recent performance being uniformly negative
• C. Recent performance being positive
• D. Newly listed stocks with uncertain futures

Answer: (C)

The concept of time-series momentum refers to the tendency of assets, such as stocks, to continue moving in the same direction based on their recent past performance. This means that if a stock has experienced positive returns over a specific time frame, it is likely to exhibit further positive performance in the near future. This phenomenon is driven by investor behavior and market psychology, where investors may continue to buy stocks that have performed well recently, thereby driving prices even higher.

In this context, the choice mentioning recent performance being positive aligns perfectly with the principles of time-series momentum, as it captures the essence of that trend-following behavior. Strong recent performance is often interpreted by market participants as a signal to continue to invest in those stocks, reinforcing the momentum effect. Thus, acknowledging that stocks with positive recent performance can maintain or increase that trend is fundamental to understanding time-series momentum in financial markets.