Rebels, Conformists, Contrarians And Momentum Traders

Evan Gatev and Stephen Ross

Yale School of Management Working Papers from Yale School of Management

Abstract: We consider investing in a noisy market with incorrect beliefs about predictability. Two types of agents use subjective models to optimize their portfolios - "conformists" who happen to believe in the self-fulfilling market consensus and "rebels" who have wrong beliefs. We compare the agents' dynamic trading and their empirically observable investment performance. An agent who believes in log-normality is always a contrarian trader, who buys more shares after the price goes down, and sells shares when the price goes up. In contrast, an agent who believes in price predictability acts as a momentum trader, who buys more shares after the price goes up, for a range of subjective market mis-pricings. We show th

Date: 2000-04-01, Revised 2003-01-01
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Working Paper: Rebels, Conformists, Contrarians And Momentum Traders (2003)
Working Paper: Rebels, Conformists, Contrarians and Momentum Traders (2000)
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