Momentum Mechanisms under Heterogeneous Beliefs

70 Pages Posted: 28 Mar 2023

See all articles by Yiming Wang

Yiming Wang

Peking University

Yan Tong

Nankai University - School of Mathematical Sciences

Yu Yan

Peking University - School of Economics

Date Written: March 20, 2023

Abstract

We establish a continuous-time heterogeneous beliefs model to discuss the mechanisms of Momentum and Reversal. Price learning, information transmission and extrapolative expectation are incorporated into a unified framework for the Momentum and Reversal. The calibration results from SP500 show that the presence of Extrapolators and Information-driven Traders are important influences of Momentum and Reversal in all phases. We also found that there is a dramatic strengthening of Momentum and Reversal with the change of belief weight near the true belief weight.

Keywords: Heterogeneous Beliefs, Extrapolators, Information Transmission, Momentum.

JEL Classification: G12, G14.

Suggested Citation

Wang, Yiming and Tong, Yan and Yan, Yu, Momentum Mechanisms under Heterogeneous Beliefs (March 20, 2023). Available at SSRN: https://ssrn.com/abstract=4393560 or http://dx.doi.org/10.2139/ssrn.4393560

Yiming Wang

Peking University

No. 38 Xueyuan Road
Haidian District
Beijing, Beijing 100871
China

Yan Tong

Nankai University - School of Mathematical Sciences

Yu Yan (Contact Author)

Peking University - School of Economics ( email )

Yiheyuan Road
the school of economics builiding
Beijing, 000000
China

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