Rebels, Conformists, Contrarians and Momentum Traders

51 Pages Posted: 12 Aug 2000  

Evan Gatev

Simon Fraser University

Stephen A. Ross

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

Multiple version iconThere are 2 versions of this paper

Date Written: August 2000

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.

Suggested Citation

Gatev, Evan and Ross, Stephen A., Rebels, Conformists, Contrarians and Momentum Traders (August 2000). NBER Working Paper No. w7835. Available at SSRN: https://ssrn.com/abstract=238481

Evan Gatev (Contact Author)

Simon Fraser University ( email )

Burnaby, British Columbia V5A 1S6
Canada

Stephen A. Ross

Yale University - International Center for Finance

Box 208200
New Haven, CT 06520-8200
United States

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

77 Massachusetts Ave.
E62-416
Cambridge, MA 02142
United States
203-432-6015 (Phone)
203-432-8931 (Fax)

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