Momentum, Reversal, and Uninformed Traders in Laboratory Markets

Authors

Robert J. Bloomfield, Cornell University
William B. Tayler, Brigham Young University - ProvoFollow
Flora H. Zhou, Bentley University

Keywords

market efficiency, behavioral finance, underreaction, overreaction, anomalies, uninformed traders

Abstract

We report the results of three experiments based on the model of Hong and Stein (1999). Consistent with the model, results show that when informed traders do not observe prices, uninformed traders generate long-term price reversals by engaging in momentum trade. However, when informed traders also observe prices, uninformed traders generate reversals by engaging in contrarian trading. Results suggest that a dominated information set is sufficient to account for the contrarian behavior observed among individual investors, and that uninformed traders may be responsible for long-term price reversals but play little role in driving short-term momentum.

Original Publication Citation

Bloomfield, R. J., W. B. Tayler, and F. Zhou. 2009. Momentum, reversal, and uninformed traders in laboratory markets. Journal of Finance 64 (6):2535-2558.

BYU ScholarsArchive Citation

Bloomfield, Robert J.; Tayler, William B.; and Zhou, Flora H., "Momentum, Reversal, and Uninformed Traders in Laboratory Markets" (2008). Faculty Publications. 8204.
https://scholarsarchive.byu.edu/facpub/8204

Document Type

Peer-Reviewed Article

Publication Date

2008

Publisher

Journal of Finance

Language

English

College

Marriott School of Business

Department

Accountancy

University Standing at Time of Publication

Full Professor

Copyright Use Information

https://lib.byu.edu/about/copyright/