Do noise traders influence stock prices?

Morgan Kelly

Open Access publications from School of Economics, University College Dublin

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 law participation by very high-income groups. The implications for the equity premium puzzle of the low returns earned by noise traders are discussed.

Keywords: Stocks--prices; Investment analysis; Financial performance; Stock exchanges & current events; Capitalists and financiers; Individual investors; Rate of return (search for similar items in EconPapers)
Pages: 13 pages
Date: 1997-08
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Citations: View citations in EconPapers (14)

Published in: Journal of Money, Credit and Banking, 29(3) 1997-08

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http://hdl.handle.net/10197/520 Open Access version, 1997 (application/pdf)

Related works:
Journal Article: Do Noise Traders Influence Stock Prices? (1997)
Working Paper: Do Noise Traders Influence Stock Prices (1996)
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Persistent link: https://EconPapers.repec.org/RePEc:ucn:oapubs:10197/520

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