Momentum and Reversals When Overconfident Investors Underestimate Their Competition

• 成果类型: Article
• 署名作者: Luo, Jiang; Subrahmanyam, Avanidhar; Titman, Sheridan
• 署名单位: Nanyang Technological University; University of California System; University of California Los Angeles; University of Texas System; University of Texas Austin
• 刊物名称: REVIEW OF FINANCIAL STUDIES
• ISSN/ISSBN: 0893-9454
• DOI: 10.1093/rfs/hhaa016
• 发表日期: 2021
• 页码: 351
• 关键词: information acquisition; Excess entry; MARKET; liquidity; price; underreaction; strategies; returns; traders; drift

摘要

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.