Conditional Estimates of Diffusion Processes for Evaluating the Positive Feedback Trading

Positive feedback trading, which buys when prices rise and sells when prices fall, has long been criticized for being destabilizing as it moves prices away from the fundamentals. Motivated by the relationship between positive feedback trading and investors cognitive bias, this paper provides a quantitative measurement of the bias based on the conditional estimates of diffusion processes. We prove the asymptotic properties of the estimates, which helps to interpret the investment behaviors that i...