Investor Sentiment, Trading Behavior and Informational Efficiency in Index Futures Markets

Download or read book Investor Sentiment, Trading Behavior and Informational Efficiency in Index Futures Markets written by Alexander Kurov and published by . This book was released on 2007 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper shows that traders in index futures markets are positive feedback traders - they buy when prices increase and sell when prices decline. Positive feedback trading appears to be more active in periods of high investor sentiment. This finding is consistent with the notion that feedback trading is driven by expectations of noise traders. Consistent with the noise trading hypothesis, order flow in index futures markets is less informative when investors are optimistic. Transitory volatility measured at high frequencies also appears to decline in periods of bullish sentiment, suggesting that sentiment-driven trading increases market liquidity.