Spatial linkages of positive feedback trading among the stock index futures markets

Shuxi Tian, Shuyi Liu and Lijie Mu

The North American Journal of Economics and Finance, 2025, vol. 75, issue PA

Abstract: Positive feedback trading, a destabilizing sentiment-driven strategy, executes purchases after price upswings and vice versa, driving price away from economic fundamentals in the short term. We apply spatial econometric approach to investigate the linkages of positive feedback trading among the stock index futures markets of 27 countries from 2010 to 2023, and the empirical results reveal that there exist not only significant local effects but also strong spatial spillovers in positive feedback trading among these markets. Moreover, we find that the spatial linkages of positive feedback trading are stronger in an upward trend when market volatility exceeds 2 % but more pronounced in the downward trend when the market volatility exceeds 4 %. Overall, our empirical findings are of considerable concern for global investors who use index futures to hedge or exploit arbitrage opportunities, as well as inspiring for policymakers to manage financial derivatives trading risk.

Keywords: Stock Index futures; Positive feedback trading; Spatial linkages (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:75:y:2025:i:pa:s1062940824002407

DOI: 10.1016/j.najef.2024.102315

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