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Daily Momentum And Contrarian Behavior Of Index Fund Investors

Author

Listed:
  • William N. Goetzmann

    (Yale School of Management, International Center for Finance)

  • Massimo Massa

    (INSEAD - Department of Financ)

Abstract

We use a two-year panel of individual accounts in an S&P 500 index mutual fund to examine the trading and investment behavior of more than 91 thousand investors who have chosen a low-cost, passively managed vehicle for savings. This allows us to characterize investors' heterogeneity in terms of their investment patterns. In particular, we identify positive feedback traders as well as contrarians whose activities are conditional upon preceding day stock market moves. We test the consistency and profitability of these conditional strategies over time. We find that more frequent traders are typically contrarians, while infrequent traders are more typically momentum investors. The dynamics of these investor classes help us to partially examine the question of the marginal investor over the period of our study. We find that the behavior of momentum investors is typically more correlated to changes in the S&P 500 and we trace its dynamics over time. We build up

Suggested Citation

  • William N. Goetzmann & Massimo Massa, 1999. "Daily Momentum And Contrarian Behavior Of Index Fund Investors," Yale School of Management Working Papers ysm13, Yale School of Management.
    • Handle: RePEc:ysm:somwrk:ysm13
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    File URL: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=199088
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    JEL classification:

    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • D9 - Microeconomics - - Micro-Based Behavioral Economics
    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • G2 - Financial Economics - - Financial Institutions and Services
    • D1 - Microeconomics - - Household Behavior

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