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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 SeriesDate posted: August 12, 2000 ; Last revised: April 02, 2001Suggested CitationContact Information
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