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Essays on Investor Behavior and Trading Strategies in International Financial Markets
Stockholm University, Faculty of Social Sciences, Stockholm Business School.ORCID-id: 0000-0002-1014-9592
2019 (engelsk)Doktoravhandling, med artikler (Annet vitenskapelig)
Abstract [en]

This dissertation contains four articles that in different ways inform on investor behavior in international financial markets, their impact on the underlying market, and the trading strategies that they pursue. Article I studies how hedge funds herd in currency future contracts and how it is affecting the underlying market. The results indicate that hedge funds herd, and that they herd in a pattern that is consistent with them following the carry trade strategy. Hedge fund herding has an impact on the underlying market, in the direction of the herd, and the results give no indication that their herding in destabilizing. Article II examines if limits to arbitrage can help explain the returns to technical analysis strategies in the foreign exchange market. The findings show that returns to technical analysis strategies are higher when limits to arbitrage are more severe, supporting the argument that profit opportunities can persist as arbitrage activity is costly and risky. However, investor sentiment seem to be unrelated to technical analysis returns. The main takeaway is that limits to arbitrage are an important determinant of technical analysis profitability. Article III investigates whether the trading activity of speculators is beneficial for the speed of information diffusion in the foreign exchange market. The findings show that predictive ability of the equity market on foreign exchange strategies dissipates when speculator activity is high. However, the same results are not found for the commodity markets ability to predict foreign exchange strategies. Overall, the results indicate that speculators play a vital role for informational efficiency in the foreign exchange market. Article IV examines the impact of investor attention on stock and foreign exchange market volatility in emerging economies using a newly constructed innovative attention proxies that capture the full spectrum of the dynamics of the information processing stages. The results show that investor attention significantly effects emerging stock market volatility, but not FX market volatility.

sted, utgiver, år, opplag, sider
Stockholm: Stockholm Business School, Stockholm University , 2019.
Emneord [en]
foreign exchange, speculators, hedge funds, investor behavior, trading strategies, information, market efficiency, Business Administration, Företagsekonomi
HSV kategori
Identifikatorer
URN: urn:nbn:se:hj:diva-51130ISBN: 978-91-7797-723-0 (tryckt)ISBN: 978-91-7797-724-7 (digital)OAI: oai:DiVA.org:hj-51130DiVA, id: diva2:1506538
Disputas
2019-09-10, Gröjersalen, hus 3, Kräftriket, Roslagsvägen 101, Stockholm, 13:00 (engelsk)
Opponent
Veileder
Tilgjengelig fra: 2020-12-03 Laget: 2020-12-03 Sist oppdatert: 2020-12-03bibliografisk kontrollert
Delarbeid
1. Hedge Fund Herding in the Currency Market
Åpne denne publikasjonen i ny fane eller vindu >>Hedge Fund Herding in the Currency Market
2019 (engelsk)Annet (Annet vitenskapelig)
Abstract [en]

In this paper, I study the patterns of hedge fund herding in currency future contracts and find evidence that hedge funds herd. High-interest (low-interest) currencies have higher buy-side (sell-side) herding consistent with carry trade positions. I then propose a strategy herding measure that I use to track hedge fund herding in the carry trade strategy. I find that hedge fund carry trade strategy herding positively predicts future returns, a result that is robust to a host of other measures of activity. I find no that hedge fund herding is destabilizing, and investors can improve performance by following hedge fund herding behavior in the carry trade.

Emneord
herding, hedge funds, carry trade, foreign exchange, Business Administration, Företagsekonomi
HSV kategori
Identifikatorer
urn:nbn:se:hj:diva-51128 (URN)
Tilgjengelig fra: 2020-12-03 Laget: 2020-12-03 Sist oppdatert: 2020-12-03bibliografisk kontrollert
2. Limits to Arbitrage and Technical Analysis Returns in the Foreign Exchange Market
Åpne denne publikasjonen i ny fane eller vindu >>Limits to Arbitrage and Technical Analysis Returns in the Foreign Exchange Market
2019 (engelsk)Annet (Annet vitenskapelig)
Abstract [en]

The profitability of technical analysis strategies seriously challenges weak-form market efficiency. An important, unanswered question is why these profit opportunities are not arbitraged away by rational investors. This study tests whether arbitrage risk in the form of limits to arbitrage (LTA) and investor sentiment explain the returns to technical analysis strategies. I find that seven proxies for LTA are positively related to returns to[AH1]  technical analysis portfolios, based on a large set of technical trading rules for six major currencies. However, higher levels of investor sentiment are unrelated to higher returns to technical analysis, contrasting the literature on stock market anomalies and practitioner belief. The main takeaway is that LTA are an important determinant of technical analysis profitability.

Emneord
foreign exchange, technical analysis, limits to arbitrage, false discovery rate, Business Administration, Företagsekonomi
HSV kategori
Identifikatorer
urn:nbn:se:hj:diva-51129 (URN)
Tilgjengelig fra: 2020-12-03 Laget: 2020-12-03 Sist oppdatert: 2020-12-03bibliografisk kontrollert
3. Speculator activity and the cross-asset predictability of FX returns
Åpne denne publikasjonen i ny fane eller vindu >>Speculator activity and the cross-asset predictability of FX returns
2020 (engelsk)Inngår i: International Review of Financial Analysis, ISSN 1057-5219, E-ISSN 1873-8079, Vol. 72, artikkel-id 101561Artikkel i tidsskrift (Fagfellevurdert) Published
Abstract [en]

This paper tests the gradual information diffusion hypothesis, which suggests that information spreads gradually across asset markets, to explain the role of speculator activity in the cross-asset return predictability of foreign exchange (FX) market strategies. We argue that the activity of speculators increase the rate of information diffusion across asset markets. Hence, we expect the predictive effect from the equity and commodity markets on FX market strategies to be weaker when speculators are active in the FX market. Our results show that, when speculator activity is high, the equity market's ability to predict the FX market dissipates, but not to the same extent as for the commodity market. Our findings suggest that speculators play a vital role in enhancing informational efficiency in the FX market.

sted, utgiver, år, opplag, sider
Elsevier, 2020
Emneord
Foreign exchange, Information, Predictability, Speculation, Trading strategies
HSV kategori
Identifikatorer
urn:nbn:se:hj:diva-51109 (URN)10.1016/j.irfa.2020.101561 (DOI)000591270200006 ()2-s2.0-85096210703 (Scopus ID);intsam;1505965 (Lokal ID);intsam;1505965 (Arkivnummer);intsam;1505965 (OAI)
Forskningsfinansiär
The Jan Wallander and Tom Hedelius Foundation
Tilgjengelig fra: 2020-12-02 Laget: 2020-12-02 Sist oppdatert: 2021-02-25bibliografisk kontrollert
4. Investor attention to market categories and market volatility: The case of emerging markets
Åpne denne publikasjonen i ny fane eller vindu >>Investor attention to market categories and market volatility: The case of emerging markets
2018 (engelsk)Inngår i: Research In International Business and Finance, ISSN 0275-5319, E-ISSN 1878-3384, Vol. 44, s. 532-546Artikkel i tidsskrift (Fagfellevurdert) Published
Abstract [en]

This paper examines the impact of investor attention on stock market and FX market volatility in emerging economies using newly constructed innovative attention proxies that capture the full spectrum of the dynamics of the information processing stages. Our results show that the new practical proxies are better at capturing the complex nature of investor attention to market categories. We find that investor attention explains stock market volatility and shocks to attention but not FX market volatility in emerging markets. Thus, the emerging stock market, an important segment of the global equity market, is particularly sensitive to changes to investor attention. 

sted, utgiver, år, opplag, sider
Elsevier, 2018
Emneord
Category-learning, Emerging markets, Investor attention, Volatility
HSV kategori
Identifikatorer
urn:nbn:se:hj:diva-51125 (URN)10.1016/j.ribaf.2017.07.124 (DOI)000430440500040 ()2-s2.0-85028317923 (Scopus ID)
Tilgjengelig fra: 2020-12-03 Laget: 2020-12-03 Sist oppdatert: 2020-12-03bibliografisk kontrollert

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