Noise trading, transaction costs, and the relationship of stock returns and trading volume

This article constructs an economic model of a rational trader who operates in a market with transaction costs and noise trading. The level of trading affects the rational trader's marginal cost of transacting; as a result, trading volume (through its effect on marginal cost) is a source of risk. This engenders an equilibrium relationship between returns and volume. The model also provides a simple way to scrutinize this relationship empirically. Empirical evidence supports the implications of the model.     

Noise traders and smart money: Evidence from online searches

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.     

Time,trading and algorithms in financial sector security

This article examines the financial security issues raised by the rapid development of high-frequency trading (HFT). HFT involves automated algorithmic trading of financial instruments where the objective is to reduce the time scale between the initiation and execution of trades to microseconds (or even nanoseconds) so as to reap competitive advantage. After outlining the contours of a HFT world, the presentation goes on to discuss some of its important consequences and implications. Several matters are discussed in this context: market manipulation, hacking, index construction and violence. Of particular significance for the notion of financial security is the issue of time as embodied in algorithmic trading. In turn this raises concerns over the regulation and management of this new field of financial innovation and trading activity.     

Investor sentiment,trading behavior and stock returns

This article examines how investor sentiment and trading behaviour affect asset returns. By analysing the unique stock trading dataset of the Korean market, we find that high investor sentiment induces higher stock market returns. We also find that institutional (individual) trades are positively (negatively) associated with stock returns, suggesting the information superiority (inferiority) of institutional (individual) investors. Investor sentiment generally plays a more important role in explaining stock market returns than investor trading behaviour.     

异质预期、噪声交易与价格波动

自20世纪80年代开始迅速发展起来的行为金融理论认为,作为具有丰富心理活动的真实的人,金融市场中的投资者普遍存在各种认知偏差、情绪偏差和意志偏差,从而导致了他们的投资决策偏差和金融资产的定价偏差,投资者的噪声交易能够对资产价格产生重要影响。本文基于噪声交易模型的框架构建了一个包含理性套利者、信息挖掘者和动量交易者这三类异质投资者在内的噪声交易理论分析模型,在模型中引入了一系列与投资者行为特征相对应的重要行为参数,然后推导出由这三类异质投资者共同决定的风险资产均衡价格,最后通过灵敏度分析来综合讨论这三类异质投资者的一些重要行为参数对均衡价格的影响。结果表明,理性套利者确实能够起到稳定市场的作用,但是当噪声交易者在市场中的比例较大时,资产价格会较大程度地偏离其基本价值。     

Political uncertainty and corporate debt financing: empirical evidence from China

We examine the influence of political uncertainty on corporate debt financing under the Chinese highly specialized political system. A new reasonable and effective alternative indicator, official turnover reason, is constructed to measure different political uncertainty level. Robust results suggest that listed companies will keep low debt financing level and smooth debt financing volatility under political uncertainty, which will be weakened during the global financial crisis. We also find that the listed company will raise equity financing level while overall financing is significantly reduced. In addition, SOEs are more sensitive to political uncertainty than non-SOEs, as they have stronger political connections with government officials.     

Positive feedback trading and long-term volatility links: evidence from real estate markets of USA,Be/Lux and Switzerland

This article investigates the positive feedback trading strategies in the real estate markets of USA, Belgium/Luxembourg (Be/Lux) and Switzerland, linking these strategies with long-term volatility. The results are in favour of a positive feedback trading strategy which negatively influences investors' risk-return position on real estate markets.     

Economic policy uncertainty and the Chinese stock market volatility: new evidence

This study investigates the impacts of the economic policy uncertainty (EPU) indexes of China and the G7 countries on Chinese stock market volatility and further constructs a new diffusion index based on these indexes using principal component analysis (PCA) to achieve enhanced predictive ability. The in-sample results indicate that the EPU indexes of China and some of the G7 countries show a significantly negative impact on future volatility. Moreover, our constructed diffusion index also has a significantly negative impact. Furthermore, the out-of-sample results show that this diffusion index exhibits a significantly higher forecast accuracy than the EPU itself and combination forecasts. Finally, various robustness checks are consistent with our main conclusions. Overall, we construct a new and useful indicator that can substantially increase forecast accuracy with respect to the Chinese stock market.     

Oil shocks,policy uncertainty and stock returns in China

This paper examines the interdependence of China's policy uncertainty, the global oil market and stock market returns in China. A structural VAR model is estimated that shows that a positive shock to economic policy uncertainty in China has a delayed negative effect on global oil production, real oil prices and real stock market returns. Shocks to oil market‐specific demand significantly raise China's economic policy uncertainty and reduce the real stock market returns. As measured by a spillover index, the interdependence between these variables has been rising since 2003 as China's influence in the oil market has increased. An equivalent spillover index calculated for the US is smaller and has been largely flat over time.