Trading behavior of stock investors: Black Monday revisited

Profitability of competing trading strategies on stock markets is one of the often discussed topics in the literature. In this regard, an empirical comparison of the two contradictory strategies, namely the momentum and the contrarian strategy, is of great interest. In this paper, we report a remarkable empirical finding taken from the US, Japanese and German stock markets, namely that the time series dynamics of the stock returns and, hence, the trading behavior of stock investors changed substantially around Black Monday in 1987. It turned out that before Black Monday investors behaved more in line with the momentum-like strategy, and after Black Monday more in line with the contrarian-like strategy.