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The Effect of Investor Sentiment on Feedback Trading and Trading Frequency: Evidence from Taiwan Intraday Data

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  • Wu-Yueh Hu
  • Chih-Jen Huang
  • Heng-Yu Chang
  • Wei-Ju Lin

Abstract

Although extensive literature has suggested that investor sentiment may be one of the most important factors in explaining investor trading frequency and trading strategies, how individual investors are significantly influenced by sentiment remains underexplored. The feature of numerous individual investors in the Taiwan stock market provides an avenue to examine the relationship of investor sentiment to trading frequency and positive-feedback trading according to intraday data. Using a vector autoregression model to measure feedback trading in one-minute intervals, we find that trading frequency appears to increase in periods of rising market, suggesting that investor sentiment–driven trading increases market trading frequency without relying on past experiences to conduct trading behavior.

Suggested Citation

  • Wu-Yueh Hu & Chih-Jen Huang & Heng-Yu Chang & Wei-Ju Lin, 2015. "The Effect of Investor Sentiment on Feedback Trading and Trading Frequency: Evidence from Taiwan Intraday Data," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 51(S1), pages 111-120, January.
    • Handle: RePEc:mes:emfitr:v:51:y:2015:i:s1:p:s111-s120
    DOI: 10.1080/1540496X.2014.998914
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    Citations

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    Cited by:

    1. Tiwari, Aviral Kumar & Abakah, Emmanuel Joel Aikins & Bonsu, Christiana Osei & Karikari, Nana Kwasi & Hammoudeh, Shawkat, 2022. "The effects of public sentiments and feelings on stock market behavior: Evidence from Australia," Journal of Economic Behavior & Organization, Elsevier, vol. 193(C), pages 443-472.
    2. Tseng‐Chan Tseng & Hung‐Cheng Lai & Jih‐Kuang Chen, 2022. "Impacts of relatively rational and irrational investor sentiment on realized volatility," Asian Economic Journal, East Asian Economic Association, vol. 36(4), pages 458-478, December.
    3. Ameet Kumar Banerjee & H. K. Pradhan, 2020. "Order Flows, Investor Sentiments and Feedback Trade in Index Futures Market," Journal of Quantitative Economics, Springer;The Indian Econometric Society (TIES), vol. 18(4), pages 767-782, December.
    4. Fotini Economou & Konstantinos Gavriilidis & Bartosz Gebka & Vasileios Kallinterakis, 2022. "Feedback trading: a review of theory and empirical evidence," Review of Behavioral Finance, Emerald Group Publishing Limited, vol. 15(4), pages 429-476, February.
    5. Andrikopoulos, Panagiotis & Cui, Yueting & Gad, Samar & Kallinterakis, Vasileios, 2020. "Feedback trading and the ramadan effect in frontier markets," Research in International Business and Finance, Elsevier, vol. 51(C).
    6. Brzeszczyński, Janusz & Gajdka, Jerzy & Kutan, Ali M., 2015. "Investor response to public news, sentiment and institutional trading in emerging markets: A review," International Review of Economics & Finance, Elsevier, vol. 40(C), pages 338-352.
    7. Wu-Yueh Hu & Heng-Yu Chang, 2018. "Investor Sentiment, Corporate Transparency and Market Returns: Evidence from Taiwan Intraday Data," Advances in Management and Applied Economics, SCIENPRESS Ltd, vol. 8(6), pages 1-4.

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