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Feedback Trading and Predictability of Stock Returns in Germany, 1880-1913

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Author Info
Christian Pierdzioch
Abstract

I use a time-varying parameter model in order to study the predictability of monthly real stock returns in Germany over the period 1880–1913. I find that the extent to which returns were predictable underwent significant changes over time. Specifically, predictability of returns, as measured by their first-order autocorrelation coefficient, was positive most of the time. It tended to be significant during extended periods of stock market decline, but not during periods of stock market increase. I argue that this time-pattern of predictability of returns is consistent with feedback effects of futures trading on the spot market.

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Paper provided by Kiel Institute for the World Economy in its series Kiel Working Papers with number 1213.

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Length: 26 pages
Date of creation: May 2004
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Handle: RePEc:kie:kieliw:1213

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Related research
Keywords: Stock market; Return Predictability; Germany;

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Find related papers by JEL classification:
G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies
N24 - Economic History - - Financial Markets and Institutions - - - Europe: 1913-

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Lux, T. & M. Marchesi, . "Volatility Clustering in Financial Markets: A Micro-Simulation of Interacting Agents," Discussion Paper Serie B 437, University of Bonn, Germany, revised Jul 1998.
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  4. De Long, J Bradford & Andrei Shleifer & Lawrence H. Summers & Robert J. Waldmann, 1990. "Noise Trader Risk in Financial Markets," Journal of Political Economy, University of Chicago Press, vol. 98(4), pages 703-38, August. [Downloadable!] (restricted)
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  5. Sentana, Enrique & Wadhwani, Sushil B, 1992. "Feedback Traders and Stock Return Autocorrelations: Evidence from a Century of Daily Data," Economic Journal, Royal Economic Society, vol. 102(411), pages 415-25, March. [Downloadable!] (restricted)
  6. Koutmos, Gregory, 1997. "Feedback trading and the autocorrelation pattern of stock returns: further empirical evidence," Journal of International Money and Finance, Elsevier, vol. 16(4), pages 625-636, August. [Downloadable!] (restricted)
  7. Cutler, David M & Poterba, James M & Summers, Lawrence H, 1990. "Speculative Dynamics and the Role of Feedback Traders," American Economic Review, American Economic Association, vol. 80(2), pages 63-68, May. [Downloadable!] (restricted)
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  8. Rockinger, Michael & Urga, Giovanni, 2001. "A Time-Varying Parameter Model to Test for Predictability and Integration in the Stock Markets of Transition Economies," Journal of Business & Economic Statistics, American Statistical Association, vol. 19(1), pages 73-84, January.
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  10. Cutler, David M & Poterba, James M & Summers, Lawrence H, 1991. "Speculative Dynamics," Review of Economic Studies, Blackwell Publishing, vol. 58(3), pages 529-46, May. [Downloadable!] (restricted)
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  11. Zalewska-Mitura, Anna & Hall, Stephen G., 1999. "Examining the first stages of market performance: a test for evolving market efficiency," Economics Letters, Elsevier, vol. 64(1), pages 1-12, July. [Downloadable!] (restricted)
  12. Robert J. Shiller, 1984. "Stock Prices and Social Dynamics," Cowles Foundation Discussion Papers 719R, Cowles Foundation, Yale University. [Downloadable!]
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  14. Goetzmann, William Nelson, 1993. "Patterns in Three Centuries of Stock Market Prices," Journal of Business, University of Chicago Press, vol. 66(2), pages 249-70, April. [Downloadable!] (restricted)
  15. Mech, Timothy S., 1993. "Portfolio return autocorrelation," Journal of Financial Economics, Elsevier, vol. 34(3), pages 307-344, December. [Downloadable!] (restricted)
  16. Choudhry, Taufiq, 2001. "Month of the Year Effect and January Effect in Pre-WWI Stock Returns: Evidence from a Non-linear GARCH Model," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 6(1), pages 1-11, January. [Downloadable!] (restricted)
  17. Fama, Eugene F, 1991. " Efficient Capital Markets: II," Journal of Finance, American Finance Association, vol. 46(5), pages 1575-617, December. [Downloadable!] (restricted)
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