The Effect of Investor Sentiment on Feedback Trading and Trading Frequency: Evidence from Taiwan Intraday Data

Abstract

Although extensive literature has suggested that investor sentiment may be one of the most important factors in explaining investor trading frequency and trading strategies, how individual investors are significantly influenced by sentiment remains underexplored. The feature of numerous individual investors in the Taiwan stock market provides an avenue to examine the relationship of investor sentiment to trading frequency and positive-feedback trading according to intraday data. Using a vector autoregression model to measure feedback trading in one-minute intervals, we find that trading frequency appears to increase in periods of rising market, suggesting that investor sentiment–driven trading increases market trading frequency without relying on past experiences to conduct trading behavior.