Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/300169 
Year of Publication: 
2024
Series/Report no.: 
LEM Working Paper Series No. 2024/14
Publisher: 
Scuola Superiore Sant'Anna, Laboratory of Economics and Management (LEM), Pisa
Abstract: 
We investigate the emergence of momentum and reversal anomalies in a general equilibrium model with complete markets and cognitively biased agents, accounting for the presence of representativeness heuristic, conservatism, and anchoring and adjusting in their beliefs. We characterize anomalies by studying return autocorrelation patterns, price gaps following sequences of different events, and relative performances of suitably defined portfolios. These three characterizations are not equivalent. They capture different aspects of mispricing and relate differently to the behavioral heuristics that we consider. Overall, the model is generically able to reproduce the empirical evidence of momentum profits that subsequently revert.
Subjects: 
Momentum
Reversal
Biased Learning
Bayesian Learning
Model Misspecification
JEL: 
G41
D53
G12
G14
Document Type: 
Working Paper

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