00Thaler_FM i-xxvi.qxd

Lemma 1: In any covariance-stationary equilibrium, φ>0. That is, momentum traders must rationally behave as trend-chasers. Th ...

Eq. (8) allows us to state the following: Proposition 2:In any covariance-stationary equilibrium, if price changes are positivel ...

does so by creating a further price increase that the next generation partially misinterprets as more good news. This causes the ...

detailed calculations are not shown; rather we use plots of the impulse re- sponses to convey the broad intuition. We begin in f ...

with j=6, the impulse response peaks at 1.265, while with j=18, the peak reaches 1.252, neither as high as in the case where j=1 ...

causes the impulse response function to reach higher peak values. Also, the unconditional volatility of monthly returns rises mo ...

Given the existence of the newswatchers and the underreaction that they create, it is certainly natural to beginan examination o ...

where φMand φCnow denote the trading elasticities of the momentum traders and the contrarians respectively. These elasticities i ...

that some arbitrageurs eventually switch over from the momentum strat- egy. Figure 14.4 illustrates by considering a situation w ...

forcing each arbitrageur to choose whether to play a momentum strategy (and condition on ∆Pt− 1 ) or a contrarian strategy (and ...

overreaction, in the sense that the cumulative impulse response of prices peaks at a value that is strictly greater than one. If ...

light of this concern, we use as a second—and hopefully purer—proxy for in- formation flow a stock’s residual analyst coverage, ...

Table 14.1 Momentum Strategies, 1/1980–12/1996: Using Raw Returns and Sorting by Size This table includes all stocks. The relati ...

C. Differential Dynamics in Response to Public versus Private News Shocks? As we have stressed repeatedly, the most natural inte ...

Table 14.3 Momentum Strategies, 1/1980–12/1996: Using Raw Returns and Sorting by Size and Residual Analyst Coverage This table i ...

It is easy to embellish our model so that it also generates short-run un- derreaction to public news. For example, one might arg ...

traders can condition on the fact that there was a public news announcement at some given date t, they can refine their strategi ...

contrast to equities, the autocorrelations for house and farm prices are posi- tive at lags of up to three years, and for collec ...

More broadly, the extended version of the model with contrarians fits with the observation that there are a variety of professio ...

rational, and actually manage to take advantage of the other group of traders, the newswatchers. This distinction is closely rel ...