The Influence of Positive Feedback Trading on Return
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چکیده
In this paper we provide empirical findings on the significance of positive feedback trading for the return behavior in the German stock market. Relying on the ShillerSentana-Wadhwani model, we use the link between index return auto-correlation and volatility to obtain a better understanding into the return characteristics generated by traders adhering to positive feedback trading strategies. Our empirical evidence shows that in the German stock market a significant proportion of investors are positive feedback traders and that this positive feedback trading seems to be responsible for the observed negative return autocorrelation during periods of high volatility. JEL Classification: G14, C22
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