Momentum, Reversal, and Uninformed Traders in Laboratory Markets
Coauthor(s): William 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.
Source: The Journal of Finance
Bloomfield, Robert, William Tayler, and Flora (Hailan) Zhou. "Momentum, Reversal, and Uninformed Traders in Laboratory Markets." The Journal of Finance 64, no. 6 (December 2009): 2535-2558.