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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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    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
    Date of revision:
    Handle: RePEc:nbr:nberwo:7835
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    8. Jegadeesh, Narasimhan & Titman, Sheridan, 1993. " Returns to Buying Winners and Selling Losers: Implications for Stock Market Efficiency," Journal of Finance, American Finance Association, vol. 48(1), pages 65-91, March.
    9. De Long, J. Bradford & Shleifer, Andrei & Summers, Lawrence H. & Waldmann, Robert J., 1990. "Positive Feedback Investment Strategies and Destabilizing Rational Speculation," Scholarly Articles 27693805, Harvard University Department of Economics.
    10. Ingersoll, Jonathan E, Jr, 2000. "Digital Contracts: Simple Tools for Pricing Complex Derivatives," The Journal of Business, University of Chicago Press, vol. 73(1), pages 67-88, January.
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