Feedback trading and the behavioural ICAPM: multivariate evidence across international equity and bond markets

Dean, Warren G.; Faff, Robert W.

doi:10.1080/09603107.2011.591728

Cited by 9 publications

(6 citation statements)

References 38 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…This may have been a matter of convenience more than anything else. Dean and Faff (2011) use an Intertemporal Capital Asset Pricing Model (ICAPM) to study paired equity and bond investments in the context of feedback trading. The authors report findings similar to those of Koutmos (1997) for the equity markets.…”

Section: Econometric Issues Extensions Of the Feedback Models And Possible Future Researchmentioning

confidence: 99%

Positive feedback trading: a review

Koutmos

2014

Review of Behavioral Finance

View full text Add to dashboard Cite

Purpose – The literature on positive feedback trading has grown considerably in recent years. The purpose of this paper is to provide a review of the theoretical and empirical literature on positive feedback trading and especially the literature related to the Sentana and Wadhwani (1992) model. Design/methodology/approach – This literature review covers theoretical and empirical work in this area and it points out shortcomings and potential extensions of the basic feedback model. Findings – The evidence so far points in the direction of positive feedback trading being present in aggregate stock market indices, index futures, bond markets, foreign exchange markets and individual stocks. There are some important issues that require further investigation. For example, it is likely that feedback trading is a function of longer lags of past return. Likewise, asymmetric behavior during up and down markets appears to be the rule rather than the exception. More importantly, the models should allow for positive as well as negative feedback and be general enough to investigate feedback trading behavior in individual assets and not just the aggregate market. Research limitations/implications – The discussion points out theoretical and empirical limitations and shortcomings of the extant literature. Originality/value – This is the first paper to review positive feedback trading, implications, limitations and need for future research.

show abstract

Section: Econometric Issues Extensions Of the Feedback Models And Possible Future Researchmentioning

confidence: 99%

Positive feedback trading: a review

Koutmos

2014

Review of Behavioral Finance

View full text Add to dashboard Cite

show abstract

“…Results of the ARIMA Model have been further verified by running a test of the accuracy of forecasts ( 27,28,29,30 . Feedback trading refers to a behavioral pattern, often labelled as herd mentality exhibited on part of investors to invest when markets are performing well.…”

Section: Adf Test Resultsmentioning

confidence: 99%

Forecasting Fund Flows in Indian Equity Mutual Funds Market using Time Series Analysis: An Empirical Investigation

Malhotra

Sinha

2021

JBT

View full text Add to dashboard Cite

<p>Mutual Funds are the second most preferred financial investment option in India amongst households, corporate and private investors alike. Managed funds bring with them the expertise of fund managers along with the benefits of diversification and lower costs. The sensitivity of fund flows defines the ability of the fund manager in offering expected future returns. Mutual fund flows exhibit time series characteristics, it being financial data collected at regular intervals over a time period. This paper studies the dynamics of mutual fund flows by utilising time series regression modelling. Monthly fund flows data for a sample of 142 equity open-ended growth orientation across major marketcap categories – Large Cap, Large and Mid Cap, Multi Cap, Mid Cap, and Small Cap have been analysed using ARIMA Modelling in the R software package. Appropriate lag length and the presence of a unit root have been investigated with the help of established techniques coupled with suitable checks of robustness. Model of best fit has been used to forecast monthly fund flows for a lag length of 60. Our study leads us to two major outcomes. One, unlike many developed and emerging markets, fund flows in the chosen sample do not confirm to positive feedback trading hypothesis. This lends credible support to the absence of irrational exuberance in mutual fund investments. Second, equity-based funds in Large Cap, Large and Mid Cap, and Multi Cap category exhibit strong trend component while funds in Mid Cap and Small Cap category have a strong random component. Beginner investors can take advantage of alpha offered by fund managers possessing effective market -timing skills, an indicator of trend-investing strategy. Funds belonging to these categories are also lesser prone to market volatility in comparison to Mid Cap and Small Cap funds, being more suitable for experienced investors</p>

show abstract

“…78. Dean and Faff (2011) show that the covariance of each of their sample countries' equity markets with their bond market helps determine the magnitude and significance of feedback trading in their bond markets (and vice versa).…”

Section: Notesmentioning

confidence: 99%

Feedback trading: a review of theory and empirical evidence

Economou

Gavriilidis

Gębka

et al. 2022

RBF

View full text Add to dashboard Cite

PurposeThe purpose of this paper is to comprehensively review a large and heterogeneous body of academic literature on investors' feedback trading, one of the most popular trading patterns observed historically in financial markets. Specifically, the authors aim to synthesize the diverse theoretical approaches to feedback trading in order to provide a detailed discussion of its various determinants, and to systematically review the empirical literature across various asset classes to gauge whether their feedback trading entails discernible patterns and the determinants that motivate them.Design/methodology/approachGiven the high degree of heterogeneity of both theoretical and empirical approaches, the authors adopt a semi-systematic type of approach to review the feedback trading literature, inspired by the RAMESES protocol for meta-narrative reviews. The final sample consists of 243 papers covering diverse asset classes, investor types and geographies.FindingsThe authors find feedback trading to be very widely observed over time and across markets internationally. Institutional investors engage in feedback trading in a herd-like manner, and most noticeably in small domestic stocks and emerging markets. Regulatory changes and financial crises affect the intensity of their feedback trades. Retail investors are mostly contrarian and underperform their institutional counterparts, while the latter's trades can be often motivated by market sentiment.Originality/valueThe authors provide a detailed overview of various possible theoretical determinants, both behavioural and non-behavioural, of feedback trading, as well as a comprehensive overview and synthesis of the empirical literature. The authors also propose a series of possible directions for future research.

show abstract

Feedback trading and the behavioural ICAPM: multivariate evidence across international equity and bond markets

Cited by 9 publications

References 38 publications

Positive feedback trading: a review

Positive feedback trading: a review

Forecasting Fund Flows in Indian Equity Mutual Funds Market using Time Series Analysis: An Empirical Investigation

Feedback trading: a review of theory and empirical evidence

Contact Info

Product

Resources

About