Index futures and positive feedback trading : evidence from major stock exchanges.

By A. Antoniou, Gregory Koutmos, A. Pericli. 2005

189 citations recorded by the source corpus.

This paper tests the hypothesis that the introduction of index futures has increased positive feedback trading in the spot markets of six industrialized nations. The analysis is based on a model that assumes two different groups of investors, i.e., risk averse expected utility maximizing investors and positive feedback traders. There is evidence consistent with positive feedback trading before the introduction of index futures across all markets under investigation. In the period following the introduction of index futures, there is no evidence supporting the hypothesis that positive feedback trading drives short-term dynamics of stock returns. The possibility that this is due to possible migration of feedback traders from the spot to the futures markets is also tested. The results show no evidence of positive feedback trading in the futures markets. Overall, the findings support the view that futures markets help stabilize the underlying spot markets by reducing the impact of feedback traders and thus attracting more rational investors who make the markets more informationally efficient and thus providing investors with superior ways of managing risk.

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/8e8995b8707e6921685fa70645aef1fdb8963120

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Citations in the corpus

Does investor sentiment really matter (2016, background): “It has been argued that asymmetry in the conditional variance arise due to, at least in part, the presence of positive feedback (or trend-chasing) trading behaviour (Antoniou et al., 2005).”
Dynamic correlation analysis of financial contagion: Evidence from Asian markets (2007, result): “This finding is in agreement with the evidence in the literature in that the AR(1) is positive in emerging markets due to price friction or partial adjustment and that AR(1) is negative as the presence of positive feedback trading in advanced markets (Antoniou et al., 2005).”
Investor Sentiment, Trading Behavior and Informational Efficiency in Index Futures Markets (2008, methodology): “In a study directly related to this paper, Antoniou, Koutmos, and Pericli (2005) analyze positive feedback trading in spot index and index futures markets of six developed nations using an indirect approach based on daily returns, similar to the approach used by Sentana and Wadhwani (1992).”
Political uncertainty and stock market volatility in the Middle East and North African (MENA) countries (2014, methodology): “In particular, following Gulen and Mayhew (2000) and Antoniou et al. (2005), we employ a GARCH-based analytical framework to account for nonsynchronous trading, conditional heteroscedasticity in returns, and an asymmetric”