Feedback Trading, Trade Inducement and Asset Prices Behavior
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| Title | Feedback Trading, Trade Inducement and Asset Prices Behavior
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| Author | Changsheng Hu，Zhen Peng and Yangchun Chi |
| Organization | Wuhan University；Guotai Junan Securities Co.Ltd |
| Email | hcs_xj@whu.edu.cn；nadp@qq.com；cyc49@126.com |
| Key Words | Feedback Trading; Trading Inducement; Investors’ Sentiment; Volatility; Momentum and Reversal |
| Abstract | Fundamentally, financial markets are “markets of human”, anomalies in financial markets are closely associated with human nature. “Sentiment and feedback” is one of the most common phenomena in financial markets, which not only embodies of human nature, but also have a significant impact on asset prices. This paper builds a model in which speculators infer and induce irrational investors characterized by feedback trading and discusses the demand function of speculators, the stability of asset prices, and the time-series character of asset prices. The study of this paper shows that: 1. Speculators have arbitrage demand and speculative demand simultaneously. 2. When there is not enough noise in the market, speculators will make noise and destabilize the market. 3. The trading behavior of speculators will also increase the instability of the time series of asset price, which produces the differences in momentum effects among different markets. The study of this paper gives a reference to our understanding of the price manipulation and the complexity and randomness of financial markets. |
| Serial Number | WP1181 |
| Time | 2017-04-18 |
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