Noise traders and smart money: Evidence from online searches

Hervé, Fabrice; Zouaoui, Mohamed; Belvaux, Bertrand

doi:10.1016/j.econmod.2019.02.005

Cited by 22 publications

(15 citation statements)

References 54 publications

(109 reference statements)

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“…Alfano, Feuerriegel, and Neumann (2015), however, found that sentiment not only influences unsophisticated noise traders but it also influences informed traders, the investors that are generally assumed to be rational. Alfano et al's (2015) results are contrary to the noise trader theory which states that there are noise traders and rational traders; the former trade noise signals while the latter trade on information (Herve et al, 2019). However, many studies have shown that even rational investors demand speculative stocks during high sentiment periods (Devault et al, 2019;Jang & Kang, 2018).…”

Section: Literature Reviewmentioning

confidence: 64%

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Investor sentiment and stock return volatility: Evidence from the Johannesburg Stock Exchange

Rupande

Muguto

Muzindutsi

2019

Cogent Economics & Finance

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Volatility is an important component of asset pricing; an increase in volatility on markets can trigger changes in the risk distribution of financial assets. In conventional financial theory, investors are considered to be rational and any changes in relevant risk are assumed to be a result of the movement in fundamental factors. However, herein this study, it is hypothesized that there are movements in risk that are driven by volatility linked to sentiment-driven noise trader activity whose patterns are irreconcilable with changes in fundamental factors. This assertion is tested using a daily sentiment composite index constructed from a set of proxies and Generalised Autoregressive Conditional Heteroscedasticity models on the South African market over a period spanning July 2002 to June 2018. The results show that there is a significant connection between investor sentiment and stock return volatility which shows that behavioural finance can significantly explain the behaviour of stock returns on the Johannesburg Stock Exchange. It is, thus, recommended that due to the inadequacies of popular asset pricing models such as the Capital Asset Pricing Model, consideration should be made towards augmenting these asset pricing models with a sentiment risk factor.

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Section: Literature Reviewmentioning

confidence: 64%

“…The irrational traders identified in behavioural finance are termed as noise traders (Herve, Zouaoui, & Belvaux, 2019). These are the investors whose wants, cognitive errors and emotions affect their preferences for certain stocks (Shefrin & Statman, 1984).…”

Section: Introductionmentioning

confidence: 99%

Investor sentiment and stock return volatility: Evidence from the Johannesburg Stock Exchange

Rupande

Muguto

Muzindutsi

2019

Cogent Economics & Finance

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“…Second, many company searches in Google are for reasons unrelated to investing (e.g., product information). Third, Google and Wikipedia may represent attention from different categories of market participants-noise traders and sophisticated investors (Hervé et al, 2019). Finally, Wikipedia began receiving less referral traffic from Google search results following Wikipedia's adoption of hypertext transfer protocol secure (HTTPS) in 2011.…”

Section: Endogeneity Concernsmentioning

confidence: 99%

Investor awareness or information asymmetry? Wikipedia and IPO underpricing

Boulton

Shohfi

Xin

2021

The Financial Review

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We use the presence of a Wikipedia article for initial public offering (IPO) firms to test theories of information asymmetry and investor awareness. Although we find limited support for the former, our results provide strong support for theories of investor awareness. Specifically, IPO firms with a Wikipedia article exhibit significantly higher underpricing and offer price revisions than do IPO firms without a Wikipedia article. Investor awareness has positive long-term effects, including greater analyst following and institutional ownership for up to 3 years after the offering. The effect is robust to firm-specific Google search volume, news coverage, retail trading intensity, social media activity, propensity score matching, and an instrumental variable approach.

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“…Cergol and Omladič (2015) demonstrated that Wikipedia entries for stock prices exhibit an inverted pattern of a "merry frown" for the bear market and a "sour grin" for the bull market. Hervé et al (2019) investigated the connection between Wikipedia records and the conduct of noise traders, finding that solely the attention of noise traders affects stock returns and increases volatility. After reviewing prior research and interpreting fear as a collective behavior arising from an outburst of public concern over an issue (Loewenstein et al, 2001), the following is suggested as the study's initial hypothesis being put to the test.…”

Section: Conceptual Frameworkmentioning

confidence: 99%

Effects of COVID-Induced Public Anxiety on European Stock Markets: Evidence From a Fear-Based Algorithmic Trading System

Sun

Cao

2022

Front. Psychol.

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The effect of COVID-induced public anxiety on stock markets, particularly in European stock market returns, is examined in this research. The search volumes for the notion of COVID-19 gathered by Google Trends and Wikipedia were used as proxies for COVID-induced public anxiety. COVID-induced public anxiety was shown to be linked with negative returns in European stock markets when a panel data method was used to a sample of data from 14 European stock markets from January 2, 2020 to September 17, 2020. Using an automated trading system, we used this finding to suggest investment methods based on COVID-induced anxiety. The findings of back-testing indicate that these techniques have the potential to generate exceptional profits. These results have significant consequences for government officials, the media, and investors.

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Noise traders and smart money: Evidence from online searches

Cited by 22 publications

References 54 publications

Investor sentiment and stock return volatility: Evidence from the Johannesburg Stock Exchange

Investor sentiment and stock return volatility: Evidence from the Johannesburg Stock Exchange

Investor awareness or information asymmetry? Wikipedia and IPO underpricing

Effects of COVID-Induced Public Anxiety on European Stock Markets: Evidence From a Fear-Based Algorithmic Trading System

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