Feedback trading and autocorrelation interactions in the foreign exchange market: Further evidence

Laopodis, Nikiforos T.

doi:10.1016/j.econmod.2005.05.008

Cited by 45 publications

(51 citation statements)

References 10 publications

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“…The literature has focused primarily on positive feedback strategy whereby investors buy (sell) when prices rise (fall) i.e., chasing the trend. Evidence of this type of behaviour is found in both individual and institutional investors (Nofsinger and Sias, 1999) and also in a wide variety of markets; see, for example, Sentana and Wadhwani (1992) for evidence of feedback trading in the U.S. stock market, Antoniou et al (2005) for the G-7 stock markets, Laopodis (2005) for foreign exchange markets, Salm and Schuppli (2010) for index futures markets, and Chau et al (2011) for exchange-traded fund (ETF) markets. When it comes to commodity markets, however, there is no clearly identified evidence of the feedback trading, despite the increasing use of commodities as an investment tool by the fund industry.…”

Section: Introductionmentioning

confidence: 99%

Arbitrage opportunities and feedback trading in emissions and energy markets

Chau

Kuo²,

Shi

2015

Journal of International Financial Markets, Institutions and Mo

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Section: Introductionmentioning

confidence: 99%

Arbitrage opportunities and feedback trading in emissions and energy markets

Chau

Kuo²,

Shi

2015

Journal of International Financial Markets, Institutions and Mo

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“…Hou and Li developed a regression model of feedback trading to analyze CSI300 stock returns and demonstrated that lagged index returns can predict market index return and conditional volatility (Hou & Li, 2014). Feedback trading was also found to significantly influence exchange rate movements (Laopodis, 2005). Using a theoretical framework, Arnold and Brunner showed that positive feedback trading causes price overreaction and the impacts of feedback trading would be dampened if news is incorporated into price in time (Arnold & Brunner, 2014).…”

Section: Introductionmentioning

confidence: 99%

News Sentiment to Market Impact and its Feedback Effect

Liu

Yang

2015

SSRN Journal

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Although market feedback on investor sentiment effect has been conceptually identified in the existing finance literature, and investment strategies have been designed to explore this effect, there lacks systematic analysis in a quantified manner on such effect. Digitization of news articles and the advancement of computational intelligence applications have led to a growing influence of news sentiment over financial markets in recent years. News sentiment has often been used as a proxy for gauging investor sentiment and reflecting the aggregate confidence of the society toward future market. Previous studies have primarily focused on elucidating the unidirectional impact of news sentiment on market returns and not vice versa. In this study, we analyze more than 12 millions of news articles and document the presence of a significant feedback effect between news sentiment and market returns across the major indices in the U.S. financial market. More specifically, we find that news sentiment exhibits a lag-5 effect on market returns and conversely market returns elicit consistent lag-1 effects on news sentiment. This aligns well with our intuition that news sentiment drives trading activity and investment decisions. In turn, heightened investment activity further stimulates involuntary responses, which manifest in the form of more news coverage and publications. The evidence presented highlights the strong correlation between news sentiment and market returns, and demonstrates the benefits of advancing knowledge in data-driven modeling and its interaction with market movements.

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“…On the contrary, in anticipation of the responses of positive feedback (trend-chasing) investors, rational speculators tend to 'jump on the bandwagon' and demand more shares than they would otherwise do and thus, the combination of feedback traders and speculators is to contribute to the movements of prices away from fundamentals. 15 In subsequent investigations, this negative relationship between serial correlation and volatility has also been found to be a feature of return series for other stock markets (Koutmos, 1997), foreign exchange markets (Laopodis, 2005), stock index futures markets (Salm and Schuppli, 2010), and the exchange-traded fund markets (Chau et al, 2011 …”

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confidence: 99%

Business cycle variation in positive feedback trading: Evidence from the G-7 economies

Chau

Deesomsak

2015

Journal of International Financial Markets, Institutions and Mo

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The full-text may be used and/or reproduced, and given to third parties in any format or medium, without prior permission or charge, for personal research or study, educational, or not-for-prot purposes provided that:• a full bibliographic reference is made to the original source • a link is made to the metadata record in DRO • the full-text is not changed in any way The full-text must not be sold in any format or medium without the formal permission of the copyright holders.Please consult the full DRO policy for further details. AbstractUsing the business cycle indicators and the aggregate stock market data, this paper examines the degree of positive feedback trading in the G-7 economies and the extent to which such behaviour varies across business cycle. The evidence suggests that there is a significant positive feedback trading in the major stock exchanges of G-7 countries and its intensity is linked to the overall macroeconomic conditions. Specifically, our investigation reveals that in expansions there is more active positive feedback trading than in recessions. Overall, our results yield an important insight into the effect of business cycle on investors' behaviour and market dynamics and bear important implications for the investment professions and market regulators.JEL classification: G14, C22

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Feedback trading and autocorrelation interactions in the foreign exchange market: Further evidence

Cited by 45 publications

References 10 publications

Arbitrage opportunities and feedback trading in emissions and energy markets

Arbitrage opportunities and feedback trading in emissions and energy markets

News Sentiment to Market Impact and its Feedback Effect

Business cycle variation in positive feedback trading: Evidence from the G-7 economies

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