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Smart Money, Noise Trading and Stock Price Behaviour

Albert Kyle and John Campbell ()

Scholarly Articles from Harvard University Department of Economics

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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Published in Review of Economic Studies

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http://dash.harvard.edu/bitstream/handle/1/3208217/campbell_smartnoise.pdf (application/pdf)

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