Noise traders and smart money: Evidence from online searches

Fabrice Herve, Mohamed Zouaoui () and Bertrand Belvaux
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Mohamed Zouaoui: CREGO - Centre de Recherche en Gestion des Organisations (EA 7317) - Université de Haute-Alsace (UHA) - Université de Haute-Alsace (UHA) Mulhouse - Colmar - UB - Université de Bourgogne - UBFC - Université Bourgogne Franche-Comté [COMUE] - UFC - Université de Franche-Comté - UBFC - Université Bourgogne Franche-Comté [COMUE]

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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: Behavioral finance; Attention measures; Smart investors; Noise traders; Price pressure hypothesis (search for similar items in EconPapers)
Date: 2019-12
Note: View the original document on HAL open archive server: https://ube.hal.science/hal-02065042v1
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Citations: View citations in EconPapers (6)

Published in Economic Modelling, 2019, 83, pp.141-149. ⟨10.1016/j.econmod.2019.02.005⟩

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Journal Article: Noise traders and smart money: Evidence from online searches (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-02065042

DOI: 10.1016/j.econmod.2019.02.005

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