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Overconfidence, trading volume and liquidity effect in Asia’s Giants: evidence from pre-, during- and post-global recession

  • Suman Gupta
  • Vinay Goyal
  • Vinay Kumar Kalakbandi
  • Sankarshan Basu
Research Article
  • 14 Downloads

Abstract

In this paper, we present evidence in favour of the overconfidence bias and its persistence in pre-, during and post-global recession sub-samples in China and India. The Chinese and Indian investors follow past market returns for the longer duration and trade excessively, which is posited as overconfidence bias. The global recession is facilitated as a structural break to examine the endurance of the overconfident trading activities. The Chinese investors are found to be more overconfident than the Indian investors in each sub-sample. We also explore that the Chinese and Indian investors are more overconfident in up than in down market states and overconfident trading behaviour of the Chinese investors is more than that of the Indian investors in both market states. The endogenous structure of vector autoregression also considers liquidity as one of the drivers of overconfident trading behaviour.  Besides trading volume, market liquidity also follows market returns for a short duration, but not vice versa. The lead–lag relationship of volume–volatility and liquidity–volatility is also explored by considering volatility as the exogenous variable.

Keywords

Overconfidence Liquidity Global Recession Vector autoregression Emerging markets 

JEL Classification

E300 G12 G19 

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Copyright information

© Indian Institute of Management Calcutta 2018

Authors and Affiliations

  1. 1.Indian Institute of Management RaipurRaipurIndia
  2. 2.Institute of Management Technology HyderabadHyderabadIndia
  3. 3.Indian Institute of ManagementBengaluruIndia

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