Empirical Evidence on Feedback Trading in Mature and Emerging Stock Markets

Martin T. Bohl and Pierre Siklos ()
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Martin T. Bohl: Department of Economics, European University Viadrina Frankfurt

No 137, Research Paper Series from Quantitative Finance Research Centre, University of Technology, Sydney

Abstract: We investigate the hypothesis that some participants in mature and emerging capital markets engage in feedback trading. The analysis is based on the Shiller-Sentana-Wadhwani noise trader model. It has the attractive property that it yields testable implications about the presence of positive and negative feedback traders in stock markets. This theoretical framework, together with an asymmetric GARCH-type model, allows us to draw conclusions about whether differences exist between mature and emerging capital markets in terms of the degree of feedback trading. The empirical results show that positive and negative feedback trading strategies exist in both types of markets but are more pronounced in emerging stock markets than in their mature counterparts. Hence, non-fundamental trading strategies seems to play a more important role in emerging relative to mature stock markets.

Keywords: feedback trading; return autocorrelation; emerging capital markets in central and eastern european contries; asymmetric GARCH models (search for similar items in EconPapers)
JEL-codes: G14 C22 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-fin
Date: 2004-10-01
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Journal Article: Empirical evidence on feedback trading in mature and emerging stock markets (2008)
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Persistent link: http://EconPapers.repec.org/RePEc:uts:rpaper:137

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