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Rebels, Conformists, Contrarians and Momentum Traders

Evan Gatev
Simon Fraser University

Stephen A. Ross
Massachusetts Institute of Technology (MIT) - Sloan School of Management; Yale University - International Center for Finance

August 2000

NBER Working Paper No. W7835

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.

JEL Classifications: G1,G0

Working Paper Series

Date posted: August 12, 2000 ; Last revised: April 02, 2001

Suggested Citation

Gatev, Evan and Ross, Stephen A.,Rebels, Conformists, Contrarians and Momentum Traders(August 2000). NBER Working Paper No. W7835. Available at SSRN: http://ssrn.com/abstract=238481

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Contact Information

Evan Gatev (Contact Author) Simon Fraser University ( email ) Burnaby, British Columbia V5A 1S6 Canada
Stephen A. Ross Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email ) Cambridge, MA 02142 United States 203-432-6015 (Phone) 203-432-8931 (Fax)
Yale University - International Center for Finance Box 208200 New Haven, CT 06520-8200 United States