I just did a search on this forum for the phrase “momentum trading” - interestingly there were zero hits. I can only assume the the phrase does not exist in the mind of an Autrian economist.
You may then be interested in this blog entry.
EDIT: It seems there is a fault in the search mechanism on this forum because there was indeed a previous post on the subject… in fact it was one of my own which I’d forgotten about!..
http://mises.org/daily/5166/Anne-Hathaway-and-Automatic-Trading
http://www.economicpolicyjournal.com/2011/08/case-for-25000-per-ounce-gold.html
Just a quick search for “momentum trading” and “momentum investing” on mises.org and the google.
From what I’ve read on momentum trading, your blog post is inconsistent here:
Even if this was true of equilibrium models, (I haven’t studied them so I couldn’t tell you), the text-book (wikipedia) explanation of momentum trading as well as your own definition is not that people purchase stocks or houses because prices are higher today than yesterday, but rather based on an analysis of the growth in the prices over time. If falling prices encourage purchasing, then surely higher profits encourage investment, and since housing and stocks are showing a trend of set returns that are higher than elsewhere in the economy, or more easily accessable, actors in the trading business are attracted to these areas.
I would therefore say that it’s not the rise in price that encourages the investment, it’s the apparent promise of certain returns. The price is merely used by entrepeneurs to gauge the possibility of profits.
For equilibrium models to fall apart due to it’s foundational premises (law of supply and demand?) being wrong, we’d have to show that if a man observes that the price of candybars rises, he is more likely to purchase them.
Smiling dave: Oops!.. it seems there is something wrong with the search mechanism on this forum - I’d actually completely forgotten about my previous post! Sorry… old age.
“I would therefore say that it’s not the rise in price that encourages the investment, it’s the apparent promise of certain returns. The price is merely used by entrepeneurs to gauge the possibility of profits.”
Another way to put it would be the return is the good being bought, and as the evaluation of the potential return goes up technically the ‘price’ goes down, and the reverse valuation needed for every exchange to take place becomes much more likely because the return is expected to be more on a dollar for dollar basis.
“and as the evaluation of the potential return goes up technically the ‘price’ goes down”
Not at all. Just because the item becomes better value, doesn’t mean its price is going down.
The price is just the number of dollars you are required to pay.
I don’t even…
It seems there is a fault in the search mechanism on this forum…
Most forums have that problem. The workaround is to use a real search engine with the prefix “site:mises.org” [no quotes].