, Volume 55, Issue 11, pp 2367-2378
Date: 10 Nov 2012

A discussion of Hong-Stein model

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Abstract

In this paper, we discuss a kind of behavioral asset pricing model, called Hong-Stein model. Although this model succeeded in explaining the momentum and reversal effects, we find it usually reaches two extremes: the absolute value of autocorrelation of return sequence is so large that the direction of returns could be easily forecasted, or the value is so small that the elements in return sequence are almost independent of each other. The empirical results show that these two extremes are not supported by the real market data.