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Momentum and Reversals When Overconfident Investors Underestimate Their Competition.
- Source :
- Review of Financial Studies; Jan2021, Vol. 34 Issue 1, p351-393, 43p
- Publication Year :
- 2021
-
Abstract
- We develop a model in which overconfident investors overestimate their own signal quality but are skeptical of others' Investors who are initially uninformed believe that early-informed investors have learned little, leading the former investors to provide excess liquidity, which, in turn, causes underreaction and short-run momentum. Skeptical investors can also react to stale information, causing momentum, followed by reversals. Hence, skepticism generates both momentum and reversals; the latter are amplified if investors overassess their own signal precision. We explain how long-run reversals can disappear while shorter-term momentum prevails, provide empirical implications, and link momentum to liquidity and price efficiency. [ABSTRACT FROM AUTHOR]
Details
- Language :
- English
- ISSN :
- 08939454
- Volume :
- 34
- Issue :
- 1
- Database :
- Complementary Index
- Journal :
- Review of Financial Studies
- Publication Type :
- Academic Journal
- Accession number :
- 147814980
- Full Text :
- https://doi.org/10.1093/rfs/hhaa016