Feedback trading on the JSE

Charteris, Ailie; Rupande, Lorraine

doi:10.1080/10293523.2017.1342319

Cited by 5 publications

(5 citation statements)

References 46 publications

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“…In more calm periods of the market (last couple of years), the Granger tests indicate less causality between all of the variables, when compared to more volatile and crisis periods. This is in line with previous research of Charteris and Rupande (2017), Bahloul and Bouri (2016) and Abdelhédi-Zouch et al (2015).…”

Section: Resultssupporting

confidence: 93%

Empirical analysis of dynamic spillovers between exchange rate return, return volatility and investor sentiment

Škrinjarić

Golubić

Orlović

2020

SEF

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Purpose This paper aims to analyze the effects of investors’ sentiment, return and risk series on one to another of selected exchange rates. The empirical analysis consists of a time-varying inter-dependence between the observed variables, with the focus on spillovers between the variables. Design/methodology/approach Monthly data on the index Sentix, exchange rates EUR–USD, EUR–CHF and EUR–JPY are analyzed from February 2003 to December 2019. The applied methodology consists of vector autoregression models (VAR) with Diebold and Yilmaz (2009, 2011) spillover indices. Findings The results of the empirical research indicate that using static analysis could result in misleading conclusions, with dynamic analysis indicating that the financial of 2007-2008 and specific negative events increase the spillovers of shock between the observed variables for all three exchange rates. The sources of shocks in the model change over time because of variables changing their positions being net emitters and net receivers of shocks. Research limitations/implications The shortfalls of this study include using the monthly data frequency, as this was available for the authors, namely, investors are interested to obtain new information on a weekly and daily basis, not only monthly. However, at the time of writing this research, we could obtain only monthly data. Practical implications As the obtained results are in line with previous literature and were found to be robust, there exists the potential to use such analysis in the future when forecasting risk and return series for portfolio management purposes. Thus, a basic comparison was made regarding the investment strategies, which were based on the results from the estimation. It was shown that using information about shock spillovers could result in strategies that can obtain better portfolio value over time compared to basic benchmark strategies. Originality/value First, this paper allows for the spillovers of shocks in variables within the VAR models in all directions. Second, a dynamic analysis is included in the study. Third, the mentioned spillover indices are included in the study as well.

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Section: Resultssupporting

confidence: 93%

Empirical analysis of dynamic spillovers between exchange rate return, return volatility and investor sentiment

Škrinjarić

Golubić

Orlović

2020

SEF

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“…Charteris and Rupande (2017) found evidence of feedback trading on the South African stock market in about 23 percent of the transactions, of which 9 percent were positive and 14 percent negative. They used Sentana and Wadhwani’s (1992) model, demonstrating the model’s capacity to explain the behavior of investors toward individual assets as proposed by Koutmos (2014).…”

Section: Literature Reviewmentioning

confidence: 99%

Investor behavior in ETF markets: a comparative study between the US and emerging markets

Neto

Klötzle

Pinto

2019

IJOEM

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Purpose The purpose of this paper is to present the results of a study on investor behavior in exchange-traded fund (ETF) markets. The standard feedback trading model of Sentana and Wadhwani (1992) is used in a sample of 18 ETFs contracts in Brazil, China, South Africa, Korea, Mexico and India, as well as three ETFs contracts in the US market. Design/methodology/approach The sample includes data on daily closing prices and net asset values (NAVs) for three ETFs from each of the emerging markets of Brazil, China, Mexico, Korea and India, as well as on three ETFs from the US market. The authors used the earliest start date available in the Thomson Reuters database pertaining to all of the ETFs, and all series ended on May 5, 2017, and applied the well-established Santana and Wadhwani (1992) seminal model to evaluate evidence of feedback trading in the sample. Findings The empirical analysis suggests that there is evidence of feedback trading in emerging markets such as Brazil, Korea, Mexico and India, while there is no such evidence for the US market. The results are consistent with the view that developed markets investors are prone to pursue fundamental-driven investment strategies, while emerging markets investors appear to have informational guided behavior. Research limitations/implications Emerging markets still make up a very small part of the global ETF market, led by the USA. Nevertheless, it is extremely important that studies of this nature be gradually expanded as these markets grow, in order to verify how emerging markets compare to their developed counterparts in terms of the efficiency of information sharing and rationalization of its operations. Practical implications Emerging markets policy makers could benefit from these findings by stimulating new mechanisms that could minimize informational asymmetry and the persistence of so-called noise traders, a phenomenon observed recently in studies regarding ETF markets (Brown, Davies and Ringgenberg, 2018). Originality/value The behavior of investors was investigated by analyzing a sample of 18 ETFs from the emerging markets of Brazil, China, South Africa, Korea, India and Mexico, as well as three ETFs from the US market. Despite of being investigated separately both emerging (Charteris et al., 2014) and developed markets (Chau et al., 2011), the innovation consists in comparing those markets in a single study, pursuing to explain potential reasons for the differences observed between developed and emerging markets.

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“…The authors further demonstrated that exploiting the strength of positive feedback trading at the stock-level could help enhance the profitability of momentum strategies. A similar "mapping" at the daily frequency (based on Sentana and Wadhwani, 1992) is provided by Charteris and Rupande (2017), who showed that about a fifth to a third (contingent on the horizon examined) of listed stocks on the South African stock market exhibited (negative, in the majority of cases) feedback trading between 2004 and 2013 [77].…”

Section: Empirical Evidencementioning

confidence: 97%

“…Gao et al, 2018) profitability of momentum strategies based on overnight returns. Third, future research could consider expanding the thin literature (Shi et al, 2012;Charteris and Rupande, 2017) on feedback trading "mapping" in order to explore whether detection of stocks' feedback trading "identity" (i.e. whether a stock accommodates positive, negative or no feedback trading) can be used to inform trading strategies (feedback and non-feedback alike).…”

Section: Summary and Suggestions For Future Researchmentioning

confidence: 99%

Feedback trading: a review of theory and empirical evidence

Economou

Gavriilidis

Gębka

et al. 2022

RBF

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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.

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Feedback trading on the JSE

Cited by 5 publications

References 46 publications

Empirical analysis of dynamic spillovers between exchange rate return, return volatility and investor sentiment

Empirical analysis of dynamic spillovers between exchange rate return, return volatility and investor sentiment

Investor behavior in ETF markets: a comparative study between the US and emerging markets

Feedback trading: a review of theory and empirical evidence

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