Do Noise Traders Influence Stock Prices?

Morgan Kelly

Journal of Money, Credit and Banking, 1997, vol. 29, issue 3, 351-63

Abstract: This paper tests a smart money-noise trader model directly by comparing its predictions with the behavior of actual investors. It assumes that individual probability of being a noise trader is diminishing in income: high income households are smart money, lower income households are noise traders, with passive investors in between. Market data behave as predicted: high participation by the general population is a negative predictor of one year returns and is associated with low participation by very high income groups. The implications for the equity premium puzzle of the low returns earned by noise traders are discussed. Copyright 1997 by Ohio State University Press.

Date: 1997
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Working Paper: Do Noise Traders Influence Stock Prices (1996)
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Persistent link: https://EconPapers.repec.org/RePEc:mcb:jmoncb:v:29:y:1997:i:3:p:351-63

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