Does Positive-Feedback Trading by Institutions Contribute to Stock Return Momentum?

46 Pages Posted: 3 Nov 2005 Last revised: 2 Jan 2012

See all articles by Tao Shu

Tao Shu

The Chinese University of Hong Kong, Shenzhen; Shenzhen Finance Institute

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

Shu, Tao, Does Positive-Feedback Trading by Institutions Contribute to Stock Return Momentum? (July 9, 2009). AFA 2007 Chicago Meetings Paper, Available at SSRN: https://ssrn.com/abstract=831364 or http://dx.doi.org/10.2139/ssrn.831364

Tao Shu (Contact Author)

The Chinese University of Hong Kong, Shenzhen ( email )

Shenzhen Finance Institute ( email )

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