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Liquidity needs, private information, feedback trading: verifying motives to trade

Author

Listed:
  • Bartosz Gębka

    (Newcastle University Business School)

  • Dobromił Serwa

    (National Bank of Poland, Financial System Department; Warsaw School of Economics, Institute of Econometrics)

Abstract

We analyse investors‟ motives for trading on international stock markets and investigate whether evidence for these motives is robust when time-varying market volatility, changes between calm and turbulent periods, and existence of international financial spillovers are controlled for. Applying the Markov-switching GARCH specification of the standard model commonly used in the literature, we find that trades conducted due to liquidity needs or driven by private information cannot be identified unequivocally in any market, and positive feedback trading becomes predominant when return spillovers from the US market are taken into account.

Suggested Citation

  • Bartosz Gębka & Dobromił Serwa, 2012. "Liquidity needs, private information, feedback trading: verifying motives to trade," NBP Working Papers 119, Narodowy Bank Polski.
    • Handle: RePEc:nbp:nbpmis:119
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    References listed on IDEAS

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    More about this item

    Keywords

    Informed trading; liquidity trading; feedback trading; return autocorrelation; trading volume; financial spillovers; contagion.;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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