Rebels, Conformists, Contrarians And Momentum Traders
AbstractWe consider investing in a noisy market with incorrect beliefs about predictability. Two types of agents use subjective models to optimize their portfolios - "conformists" who happen to believe in the self-fulfilling market consensus and "rebels" who have wrong beliefs. We compare the agents' dynamic trading and their empirically observable investment performance. An agent who believes in log-normality is always a contrarian trader, who buys more shares after the price goes down, and sells shares when the price goes up. In contrast, an agent who believes in price predictability acts as a momentum trader, who buys more shares after the price goes up, for a range of subjective market mis-pricings. We show th
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Bibliographic InfoPaper provided by Yale School of Management in its series Yale School of Management Working Papers with number ysm137.
Date of creation: 01 Apr 2000
Date of revision: 01 Jan 2003
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- Eric Hillebrand, 2005. "Mean Reversion Expectations and the 1987 Stock Market Crash: An Empirical Investigation," Finance 0501015, EconWPA.
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