Feedback trading and the behavioural ICAPM: multivariate evidence across international equity and bond markets

• Autores: Warren G. Dean
• Localización: Applied financial economics, ISSN 0960-3107, Vol. 21, Nº. 22-24, 2011, págs. 1665-1678
• Idioma: inglés
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• Resumen

  • In this article we develop a �behavioural� Intertemporal Capital Asset Pricing Model (ICAPM) in which the behavioural impetus comes from the feedback trading implications for the autocorrelation of returns. We apply the model in a setting of paired equity and bond investments, employing a bivariate diagonal Berndt�Engle�Kraft�Kroner (BEKK) framework. Our empirics rely on daily equity and bond index returns across six major economies, over the period 1 January 1990 to 30 June 2005. We find evidence supporting the theory that the observed dynamics of serial correlation can be a function of both volatility and conditional covariance (between equity and bonds). Moreover, our behavioural ICAPM shows empirical promise as a useful model of asset pricing in markets that display the feedback trading phenomenon.