We use cookies to ensure that we give you the best experience on our website. By continuing to browse this repository, you give consent for essential cookies to be used. You can read more about our Privacy and Cookie Policy.

Durham Research Online
You are in:

Investor sentiment and feedback trading : evidence from the exchange-traded fund markets.

Chau, F. and Deesomsak, R. and Lau, M. (2011) 'Investor sentiment and feedback trading : evidence from the exchange-traded fund markets.', International review of financial analysis., 20 (5). pp. 292-305.


This paper extends the standard feedback trading model of Sentana and Wadhwani (1992) by allowing the demand for shares by feedback traders to depend on sentiment. Our empirical analysis of three largest Exchange-Traded Fund (ETF) contracts in the U.S. suggests that there is a significant positive feedback trading in these markets and the intensity of which is generally linked to investor sentiment. Specifically, the level of feedback trading tends to increase when investors are optimistic. In addition, we find that the influence of sentiment on feedback trading varies across market regimes. These results are consistent with the view that feedback trading activity is largely caused by the presence of sentiment-driven noise trading. Overall, the findings are important in understanding the role of sentiment in investment behaviour and market dynamics and are of direct relevance to the regulators and investors in ETF markets.

Item Type:Article
Keywords:Investor sentiment, Feedback trading, Exchange-traded fund.
Full text:PDF - Accepted Version (872Kb)
Publisher Web site:
Publisher statement:NOTICE: this is the author’s version of a work that was accepted for publication in International Review of Financial Analysis. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in International Review of Financial Analysis, 20, 5, October 2011, 10.1016/j.irfa.2011.06.006.
Record Created:02 Aug 2011 17:05
Last Modified:04 Mar 2015 09:46

Social bookmarking: del.icio.usConnoteaBibSonomyCiteULikeFacebookTwitterExport: EndNote, Zotero | BibTex
Usage statisticsLook up in GoogleScholar | Find in a UK Library