Positive feedback trading in stock index futures: International evidence

Salm, Christian A.; Schuppli, Michael

doi:10.1016/j.irfa.2010.08.005

Cited by 46 publications

(41 citation statements)

References 44 publications

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“…32 Salm and Schuppli (2010) present similar figures for the conditional autocorrelation of 19 international stock index futures and show that autocorrelation drops during the recent financial crisis.…”

Section: The Effect Of Sentiment On Feedback Tradingsupporting

confidence: 54%

“…In subsequent investigations a negative relationship between autocorrelation and volatility has also been found to be a feature of returns for mature and emerging stock markets (Bohl and Silkos, 2008), foreign exchange markets (Laopodis, 2005), as well as stock index futures markets (Salm and Schuppli, 2010). …”

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confidence: 89%

“…We extend the logic of SW analysis to consider the potential links between investor sentiment and the behaviour of feedback traders. Several papers have explored the links between sentiment and stock returns (Brown and Cliff, 2005;Baker and Wurgler, 2006), and there have been a number of empirical investigations concerned with the behaviour of feedback traders in mature and emerging stock markets (Bohl and Siklos, 2008) as well as stock index futures markets (Salm and Schuppli, 2010).…”

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confidence: 99%

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Investor sentiment and feedback trading: Evidence from the exchange-traded fund markets

Chau

Deesomsak

Lau

2011

International Review of Financial Analysis

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NOTICE: this is the author's version of a work that was accepted for publication in International Review of Financial Analysis. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reected in this document. Changes may have been made to this work since it was submitted for publication. A denitive version was subsequently published in International Review of Financial Analysis, 20, 5, October 2011, 10.1016/j.irfa.2011.06.006. Additional information:Use policyThe 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. This paper extends the standard feedback trading model of Sentana and Wadhwani (1992) by allowing the demand for shares by feedback traders to depend on sentiment.Our empirical analysis of three largest Exchange-Traded Fund (ETF) contracts in the U.S. suggests that there is a significant positive feedback trading in these markets and the intensity of which is generally linked to investor sentiment. Specifically, the level of feedback trading tends to increase when investors are optimistic. In addition, we find that the influence of sentiment on feedback trading varies across market regimes.These results are consistent with the view that feedback trading activity is largely caused by the presence of sentiment-driven noise trading. Overall, the findings are important in understanding the role of sentiment in investment behaviour and market dynamics and are of direct relevance to the regulators and investors in ETF markets.JEL classification: G14; C22

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Section: The Effect Of Sentiment On Feedback Tradingsupporting

confidence: 54%

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confidence: 89%

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confidence: 99%

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Investor sentiment and feedback trading: Evidence from the exchange-traded fund markets

Chau

Deesomsak

Lau

2011

International Review of Financial Analysis

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“…Inkaya and Okur showed that large feedback effect rate is a useful indicator for measuring market stability by estimating volatility feedback effect rate using Malliavin (İnkaya & Yolcu Okur, 2014). There is also empirical evidence that feedback trading, a self-perpetuating pattern of investor's behavior, is present in G7 stock markets, and other international markets (Antoniou, Koutmos, & Pericli, 2005;Salm & Schuppli, 2010). Furthermore, the effect of feedback trading was found to vary across business cycle (Chau & Deesomsak, 2014) and the strongest influence was observed during periods of financial crisis with declining futures prices (Salm & Schuppli, 2010).…”

Section: Introductionmentioning

confidence: 99%

“…There is also empirical evidence that feedback trading, a self-perpetuating pattern of investor's behavior, is present in G7 stock markets, and other international markets (Antoniou, Koutmos, & Pericli, 2005;Salm & Schuppli, 2010). Furthermore, the effect of feedback trading was found to vary across business cycle (Chau & Deesomsak, 2014) and the strongest influence was observed during periods of financial crisis with declining futures prices (Salm & Schuppli, 2010). 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).…”

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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Social Media and News Sentiment Analysis for Advanced Investment Strategies

Yang

2016

Studies in Computational Intelligence

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Positive feedback trading in stock index futures: International evidence

Cited by 46 publications

References 44 publications

Investor sentiment and feedback trading: Evidence from the exchange-traded fund markets

Investor sentiment and feedback trading: Evidence from the exchange-traded fund markets

News Sentiment to Market Impact and its Feedback Effect

Social Media and News Sentiment Analysis for Advanced Investment Strategies

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