A study of feedback trading in stock index futures: An empirical analysis on Asian markets

Feedback trading is an irrational trading activity that making investment decisions only based on past changes in asset prices´ movement. Based on the stock index futures daily returns data, this paper estimates the feedback trading in nine Asian stock index futures markets using a TGARCH-based asymmetric feedback trading model. This paper also discusses the relationship between the feedback trading and return autocorrelation. The results show that there is strong evidence of positive feedback trading in the majority of Asian stock index futures markets, which induces negative return autocorrelation. At the same time, the positive feedback trading activity is much more violent during periods of market declines than periods of market advances, with a clear asymmetry. From the perspective of market participants´ behavior, the emergence of feedback traders in stock index futures market has destabilizing effects on the spot market to some extent.