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| Author: | Crombez, J. |
| Title: | Momentum, Rational Agents and Efficient Markets |
| Journal: | Journal of Psychology and Financial Markets
2001 : VOL. 2:4, p. 190-200 |
| Index terms: | EFFECTIVENESS MARKETS ANALYTICAL REVIEW |
| Language: | eng |
| Abstract: | Descriptive behavioral models explain the momentum anomaly by assuming that financial agents are irrational. However, investors are not tested to be susceptible to the cognitive failures observed in psychological experiments. The authors consider an environment where financial agents are rational, markets are efficient as defined by the Grossman-Stiglitz [1980] efficiency, and there are market imperfections in the information market. Based on a simulation experiment, the authors find that returns on momentum strategies can exist in this environment because of the noise in expert information. The authors empirically find that even in a sample of large and liquid stocks, this noise is still observable. |
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