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Momentum, Reversal, and Uninformed Traders in Laboratory Markets
Robert J. Bloomfield Cornell University - Samuel Curtis Johnson Graduate School of Management William B. Tayler Emory University - Goizueta Business School Flora H Zhou University of Illinois at Urbana-Champaign; Cornell University - Samuel Curtis Johnson Graduate School of Management June 1, 2008 Journal of Finance, October 2008 Abstract: We report the results of three experiments based on the model of Hong and Stein (1999). Consistent with the model, results show that when informed traders do not observe prices, uninformed traders generate long-term price reversals by engaging in momentum trade. However, when informed traders also observe prices, uninformed traders generate reversals by engaging in contrarian trading. Results suggest that a dominated information set is sufficient to account for the contrarian behavior observed among individual investors, and that uninformed traders may be responsible for long-term price reversals but play little role in driving short-term momentum.
Keywords: Market efficiency, behavioral finance, underreaction, overreaction, anomalies, uninformed traders JEL Classifications: C92, G14 Working Paper SeriesDate posted: September 28, 2004 ; Last revised: January 04, 2009Suggested CitationContact Information
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