Publication
Dynamics of behavioral heterogeneity in asset prices
| Summary: | I estimate a stock price model using daily data, wherein investors shift between market efficiency and momentum beliefs contingent on their prior forecast performance. I find the presence of dynamic switching behavior, where market efficiency beliefs predominantly prevail, but occasionally, momentum beliefs become prevalent. While the majority of trading days show a relatively modest impact of the fraction of momentum believers on stock price returns, heightened levels in the lagged fraction correspond to a discernible decline in stock prices. This trend is notably evident on days featuring substantial losses and those characterized by noteworthy gains. |
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| Main Authors: | Wolpert, Lea Isabel |
| Subject: | Heterogeneous expectations Stock prices Momentum Daily data Behavioral finance Switching strategies |
| Year: | 2024 |
| Country: | Portugal |
| Document type: | master thesis |
| Access type: | open access |
| Associated institution: | Universidade Nova de Lisboa |
| Language: | English |
| Origin: | Repositório Institucional da UNL |
| Summary: | I estimate a stock price model using daily data, wherein investors shift between market efficiency and momentum beliefs contingent on their prior forecast performance. I find the presence of dynamic switching behavior, where market efficiency beliefs predominantly prevail, but occasionally, momentum beliefs become prevalent. While the majority of trading days show a relatively modest impact of the fraction of momentum believers on stock price returns, heightened levels in the lagged fraction correspond to a discernible decline in stock prices. This trend is notably evident on days featuring substantial losses and those characterized by noteworthy gains. |
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