We document trading volume’s amplification effect on trading friction anomalies in the Chinese market. Unlike the uncertain role in different situations in the U.S. market, trading volume in the Chinese market represents noise trading activity rather than efficiency. At the market level, the...

Purpose - The main purpose of the research is to determine if the relationship between trading volume and price changes is connected to market effectiveness and to use the volume-price relationship to compare the efficiency levels of foreign markets. The degree of the relationship is determined...

We consider a model of the stock market with delegated portfolio management. All agents are rational: some trade for hedging reasons, some investors optimally contract with portfolio managers who may have stock-picking abilities, and portfolio managers trade optimally given the incentives...

We show theoretically that the weak transmission of beliefs to actions induces a strong bias in basic asset pricing tests. In particular, expected returns can appear to decline in risk when investors weakly transmit their payoff expectations into willingness to pay. We experimentally test this...

This study investigates the impact of flows between bond and equity funds on investment factors over the period 1984-2015. It determines contemporaneous mispricing effects and a statistical reversal relation between these flows and both legs of the investment factor. The statistical reversal...

This study conducts a reinforcement learning (RL) experiment to investigate the behavior of noise traders under adverse selection. The experiment applies the concepts of Lo’s (2004) adaptive market hypothesis to limit order markets and offers a rational, adaptive learning-based explanation for...

We consider the problem of estimating volatility based on high-frequency data when the observed price process is a continuous Itô semimartingale contaminated by microstructure noise. Assuming that the noise process is compatible across different sampling frequencies, we argue that it typically...

We study the interaction of noisy demand and skewed asset payoffs. In our model, price as a function of quantities is convex in a neighborhood around zero if and only if skewness is positive. The combination of convexity and noise produces the idiosyncratic skewness effect--a documented negative...

This paper quantifies the amount of noise and bias in analysts' forecast of corporate earnings at various horizons. We first show analyst forecasts outperform statistical forecasts at short-horizons, but underperform at longer horizons. We next decompose the relative accuracy of these forecasts...

While attention is a predictor for digital asset prices, and jumps in Bitcoin prices are well-known, we know little about its alternatives. Studying high frequency crypto data gives us the unique possibility to confirm that cross market digital asset returns are driven by high frequency jumps...

Both the literature and new empirical evidence show that exchange rate regimes differ primarily by the noisiness of the exchange rate, not be measurable macroeconomic fundamentals. This motivates a theoretical analysis of exchange rate regimes with noise traders. The presence of noise traders...

In this paper we investigate the effects of central bank interventions (CBI) in a noise trading model with chartists and fundamentalists. We first estimate a model in which chartists extrapolate past returns and fundamentalists forecast a mean reverting dynamics of the exchange rate towards a...

Mark Bell’s article (2016) is a welcome contribution to the unavoidable task of evaluating a research program that exhibits the problems he identifies: the failure of most quantitative studies to offer strong explanations for proliferation patterns, and their inability to predict out-of-sample...

This dissertation studies the US real estate investment trust (REIT) market to empirically examine several conditions of the noise trader model (NTM) — a behavioral theory that purports to explain departures of listed property share prices from their net asset values (NAV spreads). First, we...

Using minute-by-minute TV advertising data covering some 300 firms, 327,000 ads, and $20 billion in ad spending, we study the real-time effects of TV advertising on investors' searches for online financial information and subsequent trading activity. Our identification strategy exploits the fact...

We study the problem of jump detection for ultra-high-frequency tick-by-tick data. We propose a novel easy-to-implement procedure that can separate the contribution of microstructure noise and that of finite activity price jumps from the price process, which may have interesting implications on...

We introduce the Realized moMents of Disjoint Increments (ReMeDI) paradigm to measure microstructure noise (the deviation of the observed asset prices from the fundamental values caused by market imperfections). We propose consistent estimators of arbitrary moments of the microstructure noise...

This paper develops a strategic trading model in which uninformed orders are allowed to exhibit a general correlation structure that generates autocorrelation in the order flow. Since the order flow is predictable, informed traders and the market maker not only need to infer information about...

We show that the standard econometric framework typically yields inconsistent estimates of price discovery measures in the presence of richer market microstructure noise dynamics. We address this errors-in-variable issue using instrumental variables. We devise valid instruments for two...

Recent research has found the language sentiment in financial news to be a substantial driver of prices in financial markets, though there are two diametrically opposed interpretations for this: either markets perceive news sentiment as fundamental information (thus leading to changes in the...

We examine the price discovery contributions of cryptocurrency exchanges in the presence of market microstructure noise. Cryptocurrency markets exhibit a decisively higher level of microstructure noise compared to the New York Stock Exchange or NASDAQ. Therefore, traditional measures of price...

We introduce the Realized moMents of Disjoint Increments (ReMeDI) paradigm to measure microstructure noise (the deviation of the observed asset prices from the fundamental values caused by market imperfections). We propose consistent estimators of arbitrary moments of the microstructure noise...

This paper uses two highly liquid S&P 500 and gold exchange-traded funds (ETFs) to evaluate the impact of liquidity and macroeconomic news surprises on the frequency of observing intraday jumps. It explicitly addresses market microstructure noise-induced biases in realized estimators used in...

In this paper, I relax the common assumption of the one-dimensionality of noise made in the standard competitive noisy rational expectations framework. Within an environment characterized by multidimensional noise, I explore the strategic interactions between different traders that are informed...

We introduce the Realized moMents of Disjoint Increments (ReMeDI) paradigm to measure microstructure noise (the deviation of the observed asset prices from the fundamental values caused by market imperfections). We propose consistent estimators of arbitrary finite moments of a microstructure...

We demonstrate that a broad set of asset pricing factors (anomalies) are significantly exposed to "noise trader risk," and the noise trader risk is priced in factor premia. We first confirm that mutual funds' flow-induced trades of factors are uninformed as they generate a large price impact on...

This paper proposes a novel measure of noise trading that aims to capture uninformed retail trading. The measure, an indicator of whether the firm placed advertisement(s) in the Wall Street Journal seven calendar days earlier, is motivated by evidence that retail trading spikes seven days after...

We experimentally test a theory of risky choice in which the perception of a lottery payoff is noisy due to information processing constraints in the brain. We model perception using the principle of efficient coding, which implies that perception is most accurate for those payoffs that occur...

High resolution Ultra High Frequency (UHF) quotes and trades are examined to detect patterns which do not correspond to plausible market activity as in Brownlees and Gallo (2006). Non-microstructure noise is identified as a process. Methods of treatment are evaluated. A resultant paradigm of...

Lower skill of the active management industry can imply greater fee revenue, value added, and investor performance. Such outcomes arise in a competitive equilibrium in which portfolio choices of active managers partially echo those of noise traders and also contain manager-specific noise. Both...

We extend the classic ''martingale-plus-noise'' model for high-frequency returns to accommodate an error correction mechanism and endogenous pricing errors. It is motivated by (i) novel empirical evidence documenting that microstructure noise exhibits frequently changing patterns of serial...

By studying the differences between futures prices and exchange-traded fund prices for the S&P 500 index, original results are obtained about the distribution and persistence of the microstructure noise component created by bid/ask spreads and discrete price scales. The bivariate density of this...

During the past few decades, the fraction of the equity market owned directly by individuals declined significantly. The same period witnessed investment trends that include the growth of indexing as well as shifts by active managers toward lower fees and more index-like investing. I develop an...