Feedback trading and volatility asymmetry： Differences between the electronics and non-electronics sub-indexes of the Taiwan Stock Exchange

ABSTRACTThis study investigates the hypothesis that some participants in the electronics and non-electronics sub-indexesreturns of the Taiwan Stock Exchange engage in feedback trading. This investigation applies the Positive Feedback Trading Model, which has the attractive property of yielding testable implications regarding the existence of positive feedback traders in stock index markets, and is well-suited to modeling the Taiwan Stock Market, which isdominated by individual investors. This theoretical framework, together with GJR-GARCH model, can be used to depict conclusions regarding the existence of differences between electronics sub-index and non-electronics subindex returns in terms of the degree of feedback trading and the feature of volatility asymmetry.