Feedback trading: Strategies during day and night with global interconnectedness

Abstract

Feedback trading strategies have gained much popularity among researchers in the last decades and are used to illustrate how new information based on returns is reflected in the markets. This paper extends previous studies by decomposing the overall return premium and introducing the global feedback trading model. The global feedback trading model assumes an interconnectedness between multiple countries and captures spillovers. Empirical results illustrate two important findings. First, feedback trading strategies differ across markets when distinguishing between day and night returns. Second, evidence for changing feedback trading is provided by examining the interaction of specific markets.