Evidence of feedback trading with Markov switching regimes

Evidence of feedback trading with Markov switching regimes Previous research has concluded that the degree of return autocorrelation observed in index returns varies linearly with the volatility of the series, and that feedback traders are at least partly responsible for this phenomenon. Using daily Australian bond and equity market returns, we test this conclusion directly by using a Markov switching model for changing variance that explicitly allows the autocorrelation of returns to vary with the volatility regime. We find evidence that a significant proportion of investors in both the Australian equity and bond markets are positive feedback traders and are responsible for the observed increase in negative autocorrelation in index returns during periods of high and increasing volatility. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Quantitative Finance and Accounting Springer Journals

Evidence of feedback trading with Markov switching regimes

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Springer US
Copyright © 2007 by Springer Science+Business Media, LLC
Finance; Corporate Finance; Accounting/Auditing; Econometrics; Operation Research/Decision Theory
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