Thursday 16 January 2020, 1.00PM to - 2.00 pm
Speaker(s): João Madeira (DERS)
We estimate using high frequency data a stock price model in which investors switch between market efficiency and momentum beliefs based on their previous forecast performance. We find that on average momentum beliefs are only a small fraction but at times dominate the market. We then show that on most days the fraction of momentum beliefs has no impact on stock prices but does increase realized volatility. On days of large stock price losses, the fraction of momentum beliefs has a negative impact on stock prices and increases realized volatility relative to other days. Whereas on days of large gains, the fraction of momentum beliefs has a positive impact on stock prices but the effect on realized volatility does not differ to other days.
Location: Staff Room - A/EC202
Admission: Staff and PhD