Abstract
Positive feedback trading can induce autocorrelation in stock returns and increase volatility. If large numbers of market participants engage in positive feedback trading strategies asset prices may deviate substantially and persistently from fundamental values. Recent studies show evidence of positive feedback trading (i.e. selling during market declines and buying during market advances) in developed stock markets. The paper presents evidence that positive feedback trading activity is also present in emerging capital markets but mostly during market declines. During such periods stock return autocorrelations become negative and volatility rises. Volatility is in all cases higher during market declines suggesting that feedback trading may be partially responsible.
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