Feedback trading in stock index futures: Evidence from South Africa

Ailie Charteris and Arnold Musadziruma

Research in International Business and Finance, 2017, vol. 42, issue C, 1289-1297

Abstract: This study tests whether investors and speculators in stock index futures contracts on the South African stock market use feedback trading strategies. Feedback trading can be destabilizing and impede on the risk mitigation and price discovery functions of futures contracts. Using the Sentana and Wadhwani (1992) model, and accounting for the global financial crisis, we find no evidence of feedback trading in the Top40 futures index or the Top40 mini futures index contracts. Our findings have important implications for investors who wish to use index futures to mitigate risk or exploit arbitrage opportunities and regulators concerned about the destabilizing effects of futures trading.

Keywords: Feedback trading; Stock index futures; Market efficiency; South Africa (search for similar items in EconPapers)
JEL-codes: C22 G12 G13 G14 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:riibaf:v:42:y:2017:i:c:p:1289-1297

DOI: 10.1016/j.ribaf.2017.07.065

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