Quant Macro Investing

Risk Taking Disciplined

Investor Sentiment and Momentum

Investor Sentiment and Momentum

 

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1479197

 


John A. Doukas
Old Dominion University – College of Business & Public Administration

Constantinos Antoniou
Durham Business School

Avanidhar Subrahmanyam
University of California, Los Angeles – Finance Area

September 13, 2009

Abstract:     
This paper sheds empirical light on whether investor sentiment affects the profitability of price momentum strategies. We hypothesize that when investors are optimistic, their expectations will be more miscalibrated relative to those obtained from objective probabilities, and arbitrage will be more difficult with short-selling constraints. Our results show that momentum rises only when investors are optimistic, and that optimistic momentum portfolios experience long-run reversals. These results provide support to the behavioral theories, suggesting that short-run momentum and long-run reversal commonly arise from investors’ behavioral biases. 

Keywords: behavioral finance, investor sentiment, momentum, market efficiency

October 10, 2009 Posted by | Momentum Trading | Leave a comment

Momentum Chasing Quants Explain Their “Strategy”

(ZeroHedge) Momentum Chasing Quants Explain Their “Strategy” And Pray The Electrified Grid Keeps Sleeping

Tyler Durden's picture
Submitted by Tyler Durden on 09/05/2009 10:51 -0500
If you ever needed to see a formalized definition of what momos are and why they believe chasing momentum is actually a credible strategy instead of a self-perpetuating bubble that sucks many of their kind in, until the musical chairs game stops and then you have a mad dash for the fire exits, read the below press release by AQR, issued when Cliff Asness’ fund decided to go pedal to the metal in momoism. And keep in mind Cliff is not alone – these are the same “strategies” that gun up the market every day at 9:45 am, noon and 3:30 pm, simply because “it has worked in the past.” Then again, the question, just like in the RenTec case, is who is on the other side of the trade that recurs like clockwork each and every day and where just 60 minutes of trading accounts for over 70% of the entire intraday stock market movement over the past 6 months. Another key question to consider as more and more momos pile into the momentum trade is what happens when it fails and all the previously natural buyers become very unnatural sellers. Will be a sight to behold when the momentum flips. But for now, someone is very happy to keep feeding the momos, who, with Pavlovian regularity, keep coming back, until one day the Skinner box fails.

 

Click here for pdf file.

September 7, 2009 Posted by | Momentum Trading | Leave a comment