Does Positive-Feedback Trading by Institutions Contribute to Stock Return Momentum?
46 Pages Posted: 3 Nov 2005 Last revised: 2 Jan 2012
Date Written: July 9, 2009
Abstract
This paper investigates the impact of positive-feedback trading by institutions on stock return momentum and market efficiency. Using an ex-ante measure of positive-feedback trading by institutions, I find that return momentum is stronger in stocks that attract more positive-feedback trading by institutions, suggesting that positive-feedback trading by institutions intensifies stock return momentum. This effect is not only statistically and economically significant, but also robust after controlling for the other factors that influence return momentum. Further empirical findings suggest that positive-feedback trading by institutions destabilizes stock prices and hampers market efficiency.
Keywords: institutions, postive-feedback trading, momentum
JEL Classification: G12, G14, G20
Suggested Citation: Suggested Citation
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