TY - JOUR
T1 - Investor sentiment and feedback trading : Evidence from the exchange-traded fund markets
AU - Chau, Frankie
AU - Deesomsak, Rataporn
AU - Lau, Marco C.K.
N1 - Copyright:
Copyright 2012 Elsevier B.V., All rights reserved.
PY - 2011/10/12
Y1 - 2011/10/12
N2 - 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.
AB - 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.
UR - http://www.scopus.com/inward/record.url?scp=79960236969&partnerID=8YFLogxK
U2 - 10.1016/j.irfa.2011.06.006
DO - 10.1016/j.irfa.2011.06.006
M3 - Article
AN - SCOPUS:79960236969
SN - 1057-5219
VL - 20
SP - 292
EP - 305
JO - International Review of Financial Analysis
JF - International Review of Financial Analysis
IS - 5
ER -