The investor behavior and futures market volatility

Purpose - The purpose of this paper is to examine whether the futures volatility could affect the investor behavior and what trading strategy different investors could adopt when they meet different information conditions.Design methodology approach - This study introduces a two-period overlapping g...

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Bibliographic Details
Published in:China finance review international 2011-10, Vol.1 (4), p.388-407
Main Authors: Wang, Yun, Hua, Renhai, Zhang, Zongcheng
Format: Article
Language:English
Subjects:
Bias
Economic models
Equilibrium
Futures market
Institutional investments
Investor behavior
New stock market listings
Noise
Pareto optimum
Prices
Securities markets
Securities trading volume
Stock prices
Studies
Volatility
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Summary:Purpose - The purpose of this paper is to examine whether the futures volatility could affect the investor behavior and what trading strategy different investors could adopt when they meet different information conditions.Design methodology approach - This study introduces a two-period overlapping generation model (OLG) model into the future market and set the investor behavior model based on the future contract price, which can also be extended to complete and incomplete information. It provides the equilibrium solution and uses cuprum tick data in SHFE to conduct the empirical analysis.Findings - The two-period OLG model based on the future market is consistent with the practical situation; second, the sufficient information investors such as institutional adopt reversal trading patterns generally; last, the insufficient information investors such as individual investors adopt momentum trading patterns in general.Research limitations implications - Investor trading behavior is always an important issue in the behavioral finance and market supervision, but the related research is scarce.Practical implications - The conclusion shows that the investors' behavior in Chinese future market is different from the Chinese stock market.Originality value - This study empirically analyzes and verifies the different types of trading strategies investors could; investors such as institutional ones adopt reversal trading patterns generally; while investors such as individual investors adopt momentum trading patterns in general.
ISSN:2044-1398
2044-1401
DOI:10.1108/20441391111167496