Momentum mechanisms under heterogeneous beliefs

Yu Yan, Yan Tong and Yiming Wang

The North American Journal of Economics and Finance, 2025, vol. 75, issue PA

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 find that momentum and reversal become significantly stronger as belief weights approach true belief weights.

Keywords: Heterogeneous beliefs; Extrapolators; Information transmission; Momentum (search for similar items in EconPapers)
JEL-codes: G12 G14 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:75:y:2025:i:pa:s1062940824001876

DOI: 10.1016/j.najef.2024.102262

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