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Rebels, Conformists, Contrarians and Momentum Traders

  • Evan Gatev
  • Stephen A. Ross
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    We develop a model of optimal investment with two types of agents with different beliefs about the market dynamics. Market conformists agree with the true log-normal price distribution and rebels believe in price predictability. Depending on their exact beliefs, the rebels may follow either a momentum or a contrarian strategy. It is difficult to detect rebels' beliefs that are not far-fetched from the market perspective. The long-run investment portfolios of both conformist and rebels need not be biased towards equities.

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    File URL: http://www.nber.org/papers/w7835.pdf
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    Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 7835.

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    Date of creation: Aug 2000
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    Handle: RePEc:nbr:nberwo:7835
    Note: AP
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    8. Merton, Robert C., 1980. "On estimating the expected return on the market : An exploratory investigation," Journal of Financial Economics, Elsevier, vol. 8(4), pages 323-361, December.
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