Liquidity Needs, Private Information, Feedback Trading: Verifying Motives to Trade
National Bank of Poland Working Paper No. 119
26 Pages Posted: 10 Jul 2012
Date Written: June 1, 2012
We analyze 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.
Keywords: informed trading, liquidity trading, feedback trading, return autocorrelation, trading volume, financial spillovers, contagion
JEL Classification: C32, G12, G15
Suggested Citation: Suggested Citation