Rebels, Conformists, Contrarians And Momentum Traders
We 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
|Date of creation:||01 Apr 2000|
|Date of revision:||01 Jan 2003|
|Contact details of provider:|| Web page: http://icf.som.yale.edu/|
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"Mean Reversion in Stock Prices: Evidence and Implications,"
NBER Working Papers
2343, National Bureau of Economic Research, Inc.
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