This paper shows that, in the canonical dynamic rational expectations equilibrium model, public information about future noise trading is potentially detrimental to contemporaneous price efficiency. Our result supports concerns that social sentiment investing, sparked by growing availability of...

Purpose Despite its devastating nature, the COVID-19 pandemic has also catalyzed a substantial surge in the adoption and integration of technological tools within economies, exerting a profound influence on the dissemination of information among participants in stock markets. Consequently, this...

As a colossal developing economy, irrational, and inefficient trades broadly exist in China's stock market and are intensified by the once-in-a-century COVID-19 pandemic. This atypical but prominent event enhances systemic risk and requires a more effective analysis tool that adapts to the...

The information that ESG raters produce is valuable. Assessing ESG performance is conceptually challenging because we need to measure contextuality, additionality, and preferences. ESG raters, specialized ESG data providers, and aggregators can harness economies of scale. Regulators should...

This paper develops the necessary methodology for high frequency ANOVA, which includes the estimations of idiosyncratic volatility and realized R-Squared. Because the residual process is latent in the high frequency regression, the estimation of idiosyncratic volatility is notoriously difficult...

I study how the diffusion of market news, firm-specific news, and noise among firms affects stock returns in a global network. I use a structural vector auto-regression to estimate market news, firm-specific news, and noise. To determine global network linkages, I exploit analyst co-coverage....

Coordination games admit two types of equilibria: coordinated pure equilibria in which everyone plays the same action, and inefficient mixed equilibria with miscoordination. The existing literature shows that populations will converge to one of the pure coordinated equilibria from almost any...

We present a multiscale analysis of the volatility of intraday prices from high-frequency data. Our multiscale framework includes a fractional Brownian motion and microstructure noise as the building blocks. The proposed noisy fractional Brownian motion model is shown to possess a variety of...

I study how the diffusion of market news, firm-specific news, and noise among firms affects stock returns in a global network. I use a structural vector auto-regression to estimate market news, firm-specific news, and noise. To determine global network linkages, I exploit analyst co-coverage....

This paper examine the impact of noise trading on stock liquidity in China. We construct a theoretical model including noise traders, rational traders, and insiders, and test the model using transaction data on individual stocks in the CSI-300 (China-Shanghai-Shenzhen-300-Stock Index) in 2020....

This paper aims to assess the low-frequency dynamics of energy inflation’s volatility across a sample of six OECD advanced countries. The traditional argument attributes a transitory effect to energy inflation neglecting longer-term economic consequences. Using the wavelet power spectrum, we...

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...

A long literature argues corporate managers learn from stock prices, but organizations’ learning process is challenging to observe. We present a novel test using firm-level readership of financial media articles as a manifestation of managerial learning. We hypothesize that reading financial...

The main contribution of the paper is proving that the Fourier spot volatility estimator introduced in [Malliavin and Mancino, 2002] is consistent and asymptotically efficient if the price process is contaminated by microstructure noise. Specifically, in the presence of additive microstructure...

Strategies that overweight low beta stocks and underweight high beta stocks earn positive alphas. Price noise is known to affect high beta stocks, hence, noise trading can be expected to significantly affect the performance of these strategies. I study the impact of flows between bond and equity...

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...

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...

Does mobile internet distract “connected investors” from participating in financial markets? We examine this limited attention hypothesis using exogenous outages of the Blackberry Internet Service (BIS). We find that trading volume and trading frequency surge by 6% on days when BIS...

We examine the real effects of stock market efficiency by analyzing how noise in stock prices affects the efficiency of capital allocation. Using data from 42 countries and a long time-series, we find that the efficiency of capital allocation across firms (the sensitivity of corporate investment...

We introduce a software generator for a class of colored (self-correlated) and non-Gaussian noise, whose statistics and spectrum depend on two param- eters, q and τ. Inspired by Tsallis’ nonextensive formulation of statistical physics, the so-called q-distribution is a handy source of...

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 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...

FOMC announcements cause substantial trade volume in equity markets. Is such volume mirroring information flow? Using a new diagnostic to quantify information flow net of noise, we show equity prices following FOMC announcements are less informative about future indicative prices than those...

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...

Media-aware stock performance has been a hot issue in asset pricing. Numerous studies have focused on the impact of news content. However, few studies have paid attention to the form of news releases. In this paper, using data from 126,784 news of Chinese listed companies from 2013-2018, we...

This paper shows that, in the canonical dynamic rational expectations equilibrium model, public information about future noise trading is potentially detrimental to contemporaneous price efficiency. Our result supports concerns that social sentiment investing, sparked by growing availability of...