The Asymmetric Positive Feedback Trading in Individual Stocks: China's Evidences

Abstract

Based on 4 years data of individual stocks in SZ300P index, the paper investigates the positive feedback trading behavior and its asymmetry. Regressions with heterogeneous belief terms show the presence of positive feedback trading in Chinese market. The traders who react to daily, weekly or monthly returns all exist in the market. The asymmetric pattern of positive feedback trading in individual stocks is quite different from that in developed markets and the findings in index data: The volume and order imbalance both rise more after price rises than those after price declines. An updated Sentana-Wadhwani model confirms the existence of this kind of asymmetric positive feedback trading. The asymmetric positive feedback trading tends to be more intensive in small-cap and high-liquid stocks, and this partially explains the contrast asymmetry between individual stocks and indexes.

Keywords: Positive feedback trading, Asymmetry, Individual stock data, Chinese market

JEL Classification: G10, G11, G15