Noise traders and smart money: Evidence from online searches

Fabrice Herve, Mohamed Zouaoui and Bertrand Belvaux

Economic Modelling, 2019, vol. 83, issue C, 141-149

Abstract: Traditional finance theory considers that the impact of noise traders' attention on asset prices is offset by attention from smart investors. This paper uses online search data to study the influence of noise traders and smart investors on stock returns and volatility. Adopting an original approach, we construct a proxy for smart investor attention based on investors' online search behavior provided by Wikipedia Page Traffic. We combine this new measure with a standard measure of noise traders' attention as proxied by Google Search Volume Index. We show for a sample of 87 French firms over the period 2008–2018 that only noise traders' attention influences stock returns. Noise traders' attention increases volatility by creating an extra risk that is priced into the market. Conversely, smart investors' attention decreases volatility because their presence stabilizes stock prices by reducing uncertainty. Our empirical results support a behavioral explanation of stock prices.

Keywords: Attention measures; Smart investors; Noise traders; Price pressure hypothesis; Behavioral finance (search for similar items in EconPapers)
JEL-codes: G12 G4 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:83:y:2019:i:c:p:141-149

DOI: 10.1016/j.econmod.2019.02.005

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