Kiel Working Papers, Kiel Institute for World Economics
No 1213:
Feedback Trading and Predictability of Stock Returns in Germany, 1880-1913
Christian Pierdzioch
Abstract: I use a time-varying parameter model in order to study the
predictability of monthly real stock returns in Germany over the period
1880–1913. I find that the extent to which returns were predictable
underwent significant changes over time. Specifically, predictability of
returns, as measured by their first-order autocorrelation coefficient, was
positive most of the time. It tended to be significant during extended
periods of stock market decline, but not during periods of stock market
increase. I argue that this time-pattern of predictability of returns is
consistent with feedback effects of futures trading on the spot market.
Keywords: Stock market; Return Predictability; Germany; (follow links to similar papers)
JEL-Codes: G14,; N24; (follow links to similar papers)
26 pages, May 2004
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