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James Choi, David Laibson, B. Madrian, Andrew Metrick (2007)
Reinforcement Learning and Savings BehaviorMicroeconomic Theory eJournal
J. Griffin, J. Martin, Susan Ji (2002)
Momentum Investing and Business Cycle Risk: Evidence from Pole to PoleAmerican Finance Association Meetings (AFA)
Narasimhan Jegadeesh, S. Titman (1993)
Returns to Buying Winners and Selling Losers: Implications for Stock Market EfficiencyJournal of Finance, 48
(2001)
Profitability of Momentum Strategies: an Evaluation of Alternative Explanations
K. Rouwenhorst (1997)
International Momentum StrategiesCapital Markets eJournal
V. Smith, G. Suchanek, A. Williams
Bubbles, crashes and endogenous expectations in experimental spot markets
Jennifer Conrad, Gautam Kaul (1989)
Mean Reversion in Short-Horizon Expected ReturnsReview of Financial Studies, 2
Mary Bange (2000)
Do the Portfolios of Small Investors Reflect Positive Feedback Trading?Journal of Financial and Quantitative Analysis, 35
E. Haruvy, Y. Lahav, C. Noussair
Trader's expectations in asset markets: experimental evidence
John Nofsinger, R. Sias (1999)
Herding and Feedback Trading by Institutional and Individual InvestorsJournal of Finance, 54
Purpose – Existing empirical studies that document momentum trading strategies do not provide any insight on how investors choose the time horizon that is used to compute the past stock returns. Indeed, since past returns over overlapping time periods are positively correlated, it is hard to identify the exact historical time period on which investors base their trading strategies and to investigate whether such a period is unique. The purpose of this paper is to investigate this and reach some conclusions. Design/methodology/approach – In this paper the author uses experimental setting to analyze how investors choose which of the past returns to use as a basis for their trading strategies and whether this choice depends on their investment horizon. The advantage of this experimental setting over the existing empirical research is the ability to control for the investment horizon of the subjects and the ability to provide the subjects with a hand‐picked set of stocks with uncorrelated past returns over overlapping time periods. In the study subjects were asked to make short‐term investment decisions based on historical short‐term realized returns over two time intervals of different lengths. In each treatment the subjects were divided into two groups based on the lengths of their investment horizons, which were set to match the lengths of time intervals used to compute the historical returns. Findings – It was found that subjects followed momentum trading strategies based on both historical returns provided to them and paid more attention to the historical returns over the shorter time period. In addition, some evidence was found that subjects with longer investment horizons rely less on momentum strategies. Originality/value – A wide sample was used to create an original set of observations and conclusions.
Journal of Economic Studies – Emerald Publishing
Published: Jan 20, 2012
Keywords: Investments; Returns; Momentum trading; Trend‐chasing; Experimental finance
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