The purpose of this paper is to examine the hypothesis of feedback trading along with the short-term return dynamics of three size-based stock portfolios of Athens Stock Exchange during the Greek debt crisis period.
To this end, the authors employ for the first time in the literature two well-known models while the variance equation is modeled by means of a multivariate EGARCH specification. As a robustness test an innovative nested-EGARCH model is also employed.
The assumption that positive feedback trading is an important component of the short-term return movements across the three stock portfolios receives significant support. Moreover, the volatility interdependence, both in magnitude and sign, is almost similar across the three models. Finally, bad news originating from the portfolio of small stock appears to have a higher impact on the volatility of large and medium size stock returns than good news during the Greek debt crisis period.
The methodology is innovative and the authors test for the first time the feedback trading hypothesis across different size stocks. The authors believe that the results might entail significant policy implications for investors and market regulators.
