Original scientific paper

Detecting Positive Feedback Trading when Autocorrelation is Positive

Julijana Angelovska ; Faculty of Economics and Administrative Science, International Balkan University, Skopje, Macedonia

Abstract

The temporary convergence of beliefs and actions is a possibility. Positive feedback trading
as a stock exchange trading strategy is commonly used as one of the oldest theories about
fi nancial markets. Sentana-Wadhwani model was used to test Positive feedback trading.
Even though the model supposes that low volatility is associated with positive autocorrelation
and high volatility is associated with negative autocorrelation, empirical research for
small and young emerging stock exchange shows that high volatility is followed by positive
autocorrelation and positive feedback strategy. Accordingly this is evidence in favour
of behavioral over traditional fi nance. Investors prefer to follow positive feedback strategy,
ignoring fundamental values.

Keywords

Positive feedback trading; Behavioral fi nance; GARCH; EGARCH; GJR GARCH

Hrčak ID:

102023

URI

https://hrcak.srce.hr/102023

Publication date:

1.5.2013.

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