Investors' Overconfidence Leads to Momentum and Excess Volatility in Markets
The article explores a game where players coordinate their actions with imperfect monitoring. The study finds that a specific equilibrium is consistently chosen due to behavioral factors like focal point analysis, probability matching, and overconfidence. This equilibrium leads to patterns like momentum, reversal, and excess volatility in financial markets, shedding light on why technical analysis is a popular investment strategy.