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Rebels, Conformists, Contrarians and Momentum Traders

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  • Evan Gatev
  • Stephen A. Ross

Abstract

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.

Suggested Citation

  • Evan Gatev & Stephen A. Ross, 2000. "Rebels, Conformists, Contrarians and Momentum Traders," NBER Working Papers 7835, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:7835
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    References listed on IDEAS

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    Cited by:

    1. Eric Hillebrand, 2005. "Mean Reversion Expectations and the 1987 Stock Market Crash: An Empirical Investigation," Finance 0501015, EconWPA.

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    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G0 - Financial Economics - - General

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