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Feedback trading: a review of theory and empirical evidence

Economou, F.; Gavriilidis, K.; Gebka, B.; Kallinterakis, V.

Authors

F. Economou

K. Gavriilidis

B. Gebka



Abstract

Purpose
The purpose of this paper is to comprehensively review a large and heterogeneous body of academic literature on investors' feedback trading, one of the most popular trading patterns observed historically in financial markets. Specifically, the authors aim to synthesize the diverse theoretical approaches to feedback trading in order to provide a detailed discussion of its various determinants, and to systematically review the empirical literature across various asset classes to gauge whether their feedback trading entails discernible patterns and the determinants that motivate them.

Design/methodology/approach
Given the high degree of heterogeneity of both theoretical and empirical approaches, the authors adopt a semi-systematic type of approach to review the feedback trading literature, inspired by the RAMESES protocol for meta-narrative reviews. The final sample consists of 243 papers covering diverse asset classes, investor types and geographies.

Findings
The authors find feedback trading to be very widely observed over time and across markets internationally. Institutional investors engage in feedback trading in a herd-like manner, and most noticeably in small domestic stocks and emerging markets. Regulatory changes and financial crises affect the intensity of their feedback trades. Retail investors are mostly contrarian and underperform their institutional counterparts, while the latter's trades can be often motivated by market sentiment.

Originality/value
The authors provide a detailed overview of various possible theoretical determinants, both behavioural and non-behavioural, of feedback trading, as well as a comprehensive overview and synthesis of the empirical literature. The authors also propose a series of possible directions for future research.

Citation

Economou, F., Gavriilidis, K., Gebka, B., & Kallinterakis, V. (2023). Feedback trading: a review of theory and empirical evidence. Review of Behavioural Finance, 15(4), 429-476. https://doi.org/10.1108/rbf-12-2021-0268

Journal Article Type Article
Acceptance Date Feb 2, 2022
Online Publication Date Feb 18, 2022
Publication Date Jun 29, 2023
Deposit Date Mar 31, 2023
Journal Review of Behavioural Finance
Print ISSN 1940-5979
Publisher Emerald
Peer Reviewed Peer Reviewed
Volume 15
Issue 4
Pages 429-476
DOI https://doi.org/10.1108/rbf-12-2021-0268
Public URL https://durham-repository.worktribe.com/output/1175745
Publisher URL https://www.emerald.com/insight/content/doi/10.1108/RBF-12-2021-0268/full/html