The Journal of Finance publishes leading research across all the major fields of finance. It is one of the most widely cited journals in academic finance, and in all of economics. Each of the six issues per year reaches over 8,000 academics, finance professionals, libraries, and government and financial institutions around the world. The journal is the official publication of The American Finance Association, the premier academic organization devoted to the study and promotion of knowledge about financial economics.
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Momentum, Reversal, and Uninformed Traders in Laboratory Markets
Published: 11/25/2009 | DOI: 10.1111/j.1540-6261.2009.01510.x
ROBERT J. BLOOMFIELD, WILLIAM B. TAYLER, FLORA (HAILAN) ZHOU
We report the results of three experiments based on the model of Hong and Stein (1999). Consistent with the model, the 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. The 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.