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Investor attention to market categories and market volatility: The case of emerging markets
Stockholm Business School, Stockholm University, Stockholm, Sweden.
Business School, Stellenbosch University, Cape Town, South Africa.
Stockholm Business School, Stockholm University, Stockholm, Sweden.ORCID iD: 0000-0002-1014-9592
2018 (English)In: Research In International Business and Finance, ISSN 0275-5319, E-ISSN 1878-3384, Vol. 44, p. 532-546Article in journal (Refereed) 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. 

Place, publisher, year, edition, pages
Elsevier, 2018. Vol. 44, p. 532-546
Keywords [en]
Category-learning, Emerging markets, Investor attention, Volatility
National Category
Economics
Identifiers
URN: urn:nbn:se:hj:diva-51125DOI: 10.1016/j.ribaf.2017.07.124ISI: 000430440500040Scopus ID: 2-s2.0-85028317923OAI: oai:DiVA.org:hj-51125DiVA, id: diva2:1506512
Available from: 2020-12-03 Created: 2020-12-03 Last updated: 2020-12-03Bibliographically approved
In thesis
1. Essays on Investor Behavior and Trading Strategies in International Financial Markets
Open this publication in new window or tab >>Essays on Investor Behavior and Trading Strategies in International Financial Markets
2019 (English)Doctoral thesis, comprehensive summary (Other academic)
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.

Place, publisher, year, edition, pages
Stockholm: Stockholm Business School, Stockholm University, 2019
Keywords
foreign exchange, speculators, hedge funds, investor behavior, trading strategies, information, market efficiency, Business Administration, Företagsekonomi
National Category
Economics
Identifiers
urn:nbn:se:hj:diva-51130 (URN)978-91-7797-723-0 (ISBN)978-91-7797-724-7 (ISBN)
Public defence
2019-09-10, Gröjersalen, hus 3, Kräftriket, Roslagsvägen 101, Stockholm, 13:00 (English)
Opponent
Supervisors
Available from: 2020-12-03 Created: 2020-12-03 Last updated: 2020-12-03Bibliographically approved

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