# Feedback Trading, Investor Sentiment and the Volatility Puzzle: An Infinite Theoretical Framework

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## Abstract

**:**

## 1. Introduction

## 2. Literature Review and Psychological Evidence

## 3. Model

**Assumption**

**1.**

**Assumption**

**2.**

**Assumption**

**3.**

**Inference**

**1.**

**Inference**

**2.**

**Assumption**

**4.**

#### 3.1. Single-Period Sentiment Shock

#### 3.2. Multiple Sentiment Shocks

#### 3.3. From First-Order Moment to Second-Order Moment

**Inference**

**3.**

**Inference**

**4.**

#### 3.4. Further Discussion: Abnormal Fluctuations Introducing Time-Varying Preferences

## 4. Summary and Outlook

## Author Contributions

## Funding

## Data Availability Statement

## Conflicts of Interest

## Appendix A

**Proof**

**of**

**Equations**

**(9)**

**and**

**(10).**

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**Figure 1.**Feedback coefficient and price dislocation (the parameter assignment here originates from Barberis (2018) [15]).

**Figure 2.**Feedback trading intensity and the Keynes effect (the parameter assignment here originates from Barberis (2018) [15]).

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**MDPI and ACS Style**

Chen, C.; Hu, C.; Wu, L.
Feedback Trading, Investor Sentiment and the Volatility Puzzle: An Infinite Theoretical Framework. *Mathematics* **2023**, *11*, 3148.
https://doi.org/10.3390/math11143148

**AMA Style**

Chen C, Hu C, Wu L.
Feedback Trading, Investor Sentiment and the Volatility Puzzle: An Infinite Theoretical Framework. *Mathematics*. 2023; 11(14):3148.
https://doi.org/10.3390/math11143148

**Chicago/Turabian Style**

Chen, Cong, Changsheng Hu, and Liang Wu.
2023. "Feedback Trading, Investor Sentiment and the Volatility Puzzle: An Infinite Theoretical Framework" *Mathematics* 11, no. 14: 3148.
https://doi.org/10.3390/math11143148