Feedback Trading, Investor Sentiment and the Volatility Puzzle:An Infinite Theoretical Framework
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AI-generated summary
This theoretical framework models how feedback trading amplifies sentiment shock effects on asset prices, causing abnormal volatility through cognitive bias and trading inducement.
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Abstract
Feedback trading theory is one of the most primitive theories about financial market. But for a long time，researches and modelings on this topic are rarely seen. The model in this paper shows the effects of sentiment shocks on asset prices in a market characterized by feedback trading in the long run. We find that，generally，feedback trading will lead to cognitive bias effect and trading inducement effect. Cognitive bias effect increases with the feedback trading parameter ( FTP) . In our model，the abnormal volatility of asset prices is captured by cognitive bias effect，sentiment shock effect and trading inducement effect．
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- last seen: 2026-05-19T01:45:01.086888+00:00