Hostname: page-component-78c5997874-v9fdk Total loading time: 0 Render date: 2024-11-15T06:48:24.951Z Has data issue: false hasContentIssue false
  • English
  • Français

Daily Momentum and Contrarian Behavior of Index Fund Investors

Published online by Cambridge University Press:  06 April 2009

William N. Goetzmann  and
Massimo Massa
William N. Goetzmann
Affiliation:
william.goetzmann@yale.edu, School of Management, Yale University, 135 Prospect Street, Box 208200, New Haven, CT 06520
Massimo Massa
Affiliation:
massimo.massa@insead.edu, INSEAD, Boulevard de Constance, Fontainebleau Cedex 77305, France.
Get access Rights & Permissions [Opens in a new window]

Abstract

We use a two-year panel of individual accounts in an S&P 500 index mutual fund to examine the trading and investment behavior of more than 91,000 investors who have chosen a low-cost, passively managed vehicle for savings. We identify classes of momentum investors and contrarian investors. We use these classes to build up “behavioral factors” based on contrarian and momentum flows and we show that they are relevant for pricing. They perform well against a benchmark of loadings on latent factors extracted from returns.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 37 , Issue 3 , September 2002 , pp. 375 - 389
Copyright
Copyright © School of Business Administration, University of Washington 2002

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Brennan, M. J.; Chordia, T.; and Subrahmanyam, A.. “Alternative Factor Specifications, Security Characteristics, and the Cross Section of Expected Returns.” Journal of Financial Economics, 49 (1998), 345–373.CrossRefGoogle Scholar
Brennan, M. J.; Jegadeesh, N.; and Swaminathan, B.. “Investment Analysis and the Adjustment of Stock Prices to Common Information.” Review of Financial Studies, 6 (1993), 799–824.CrossRefGoogle Scholar
Busse, J. A. “Volatility Timing in Mutual Funds: Evidence from Daily Returns.” Review of Financial Studies, 12 (1998), 1009–1042.CrossRefGoogle Scholar
Choe, H.; Kho, B.; and Stulz, R. M.. “Do Foreign Investors Destabilize Stock Markets? The Korean Experience in 1997.” Journal of Financial Economics, 54 (1997), 227–264.CrossRefGoogle Scholar
De Long, J. B.; Shleifer, A.; Summers, L. H.; and Waldmann, R. J.. “Positive Feedback Investment Strategies and Destabilizing Rational Speculation.” Journal of Finance, 45 (1990), 379–395.CrossRefGoogle Scholar
Edelen, R. M., and Warner, J. B.. “Aggregate Price Effects of Institutional Trading: A Study of Mutual Fund Flow and Market Returns.” Journal of Financial Economics, 59 (2001).CrossRefGoogle Scholar
Froot, K. A.; O'Connell, P. G. J.; and Seasholes, M.. “The Portfolio Flows of International Investors.” Journal of Financial Economics, 59 (2001), 151–193.CrossRefGoogle Scholar
Goetzmann, W., and Massa, M.. “Index Funds and Stock Market Growth.” Journal of Business (forthcoming 2002).Google Scholar
Gompers, P., and Metrick, A.. “Institutional Investors and Equity Prices.” Quarterly Journal of Economics, 116 (2001), 229–259.CrossRefGoogle Scholar
Graham, J. R., and Harvey, C. R.. ‘Market Timing Ability and Volatility Implied in Investment Newsletters’ Asset Allocation Recommendations.” Journal of Financial Economics, 42 (1996), 397–421.CrossRefGoogle Scholar
Grinblatt, M., and Keloharju, M.. “How Distance, Language, and Culture Influence Stockholdings and Trades.” Journal of Finance, 56 (2001a), 1053–1073.CrossRefGoogle Scholar
Grinblatt, M., and Keloharju, M. “What Makes Investors Trade?” Journal of Finance, 56 (2001b), 589–616.CrossRefGoogle Scholar
Grinblatt, M.; Titman, S.; and Wermers, R.. “Momentum Investment Strategies, Portfolio Performance, and Herding: A Study of Mutual Fund Behavior.” American Economic Review, 85 (1995), 1088–1105.Google Scholar
Keim, D., and Madhavan, A.. “Anatomy of the Trading Process. Empirical Evidence on the Behavior of Institutional Traders.” Journal of Financial Economics, 37 (1995), 371–398.CrossRefGoogle Scholar
Lakonishok, J., and Maberly, E.. “The Weekend Effect: Trading Patterns of Individual and Institutional Investors.” Journal of Finance, 45 (1990), 231–243.CrossRefGoogle Scholar
Lakonishok, J.; Shleifer, A.; and Vishny, R. W.. “Do Institutional Investors Destabilize Stock Prices? Evidence on Herding and Feedback Trading.” NBER Working Paper: 3846 (1991).CrossRefGoogle Scholar
Lewellen, W. G.; Lease, R. C.; and Schlarbaum, G. C.. “Investment Performance and Investor Behavior.” Journal of Financial and Quantitative Analysis, 14 (1979), 29–57.CrossRefGoogle Scholar
Nofsinger, J. R., and Sias, R. W.. “Herding and Feedback Trading by Institutional and Individual Investors.” Journal of Finance, 54 (1999), 2263–2295.CrossRefGoogle Scholar
Odean, T. “Are Investors Reluctant to Realize Their Losses?” Journal of Finance, 53 (1998), 1775–1798.CrossRefGoogle Scholar
Sias, R. W., and Starks, L. T.. “Return Autocorrelation and Institutional Investors.” Journal of Financial Economics, 46 (1996), 103–131.CrossRefGoogle Scholar