Daily Momentum and Contrarian Behavior of Index Fund Investors

William Goetzmann and Massimo Massa

No 7567, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We use a two-year panel of individual accounts in an S&P 500 index mutual fund to examine the trading and investment behavior of more than 91 thousand investors who have chosen a low-cost, passively managed vehicle for savings. This allows us to characterize investors' heterogeneity in terms of their investment patterns. In particular, we identify positive feedback traders as well as contrarians whose activities are conditional upon preceding day stock market moves. We test the consistency and profitability of these conditional strategies over time. We find that more frequent traders are typically contrarians, while infrequent traders are more typically momentum investors. The dynamics of these investor classes help us to partially examine the question of the marginal investor over the period of our study. We find that the behavior of momentum investors is typically more correlated to changes in the S&P 500 and we trace its dynamics over time. We build up behavioral factors' based on contrarian and momentum flows and show that they perform well against a benchmark of loadings on latent factors extracted from returns. We also use the behavior of momentum and contrarian investors to build a measure of market polarization.' This captures the dispersion of beliefs among the investors and helps to account for asset pricing better than standard measures of dispersion of beliefs.

Date: 2000-02
New Economics Papers: this item is included in nep-fin
Note: AP
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (18)

Published as Goetzmann, William N. and Massimo Massa. "Daily Momentum And Contrarian Behavior Of Index Fund Investors," Journal of Financial and Quantitative Analysis, 2002, v37(3,Sep), 375-389.

Downloads: (external link)
http://www.nber.org/papers/w7567.pdf (application/pdf)

Related works:
Journal Article: Daily Momentum and Contrarian Behavior of Index Fund Investors (2002)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:7567

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w7567

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().