Smart Money, Noise Trading and Stock Price Behaviour

John Campbell and Albert S. Kyle

The Review of Economic Studies, 1993, vol. 60, issue 1, 1-34

Abstract: This paper estimates an equilibrium model of stock price behaviour in which changes in exponentially de-trended dividends and prices are normally distributed and exogenous "noise traders" interact with "smart-money" investors who have constant absolute risk aversion. The model can explain the volatility and predictability of U.S. stock returns in the period 1871–1986 using either a low discount rate (4% or below) and a large constant risk discount on the stock price, or a higher discount rate (5% or above) and noise trading correlated with fundamentals. The data are not well able to distinguish between these explanations.

Date: 1993
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Working Paper: Smart Money, Noise Trading and Stock Price Behaviour (1993)
Working Paper: SMART MONEY, NOISE TRADING AND STOCK PRICE BEHAVIOR (1988)
Working Paper: Smart Money, Noise Trading and Stock Price Behavior (1988)
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