Opening Jump and Noise Trading

28 Pages Posted: 27 Aug 2009 Last revised: 11 Jul 2011

See all articles by Srinivasan Maheswaran

Srinivasan Maheswaran

Institute for Financial Management and Research (IFMR)

G. Balasubramanian

Institute for Financial Management and Research, Nungambakkam

Chirackel Ahammed Yoonus

Institute for Financial Management and Research

Date Written: July 4, 2011

Abstract

In this paper, we provide evidence that the opening stock price contains noise on an everyday basis among all the NIFTY companies. However, we also find that the impact of noise does get eliminated from prices at the end of the trading day. We show how these seemingly contradictory twin empirical findings about the Indian stock market can be reconciled by proposing a Noise Trading Model in the framework of Kyle (1985). Furthermore, we show how to come up with a simple trading strategy that makes use of the market inefficiency created due to noise and demonstrate that it is indeed highly profitable.

Keywords: Noise trading, Price discovery, Information Content, Opening Jump

JEL Classification: G10, G12, G14

Suggested Citation

Maheswaran, Srinivasan and Balasubramanian, G. and Yoonus, Chirackel Ahammed, Opening Jump and Noise Trading (July 4, 2011). 22nd Australasian Finance and Banking Conference 2009. Available at SSRN: https://ssrn.com/abstract=1459963 or http://dx.doi.org/10.2139/ssrn.1459963

Srinivasan Maheswaran (Contact Author)

Institute for Financial Management and Research (IFMR) ( email )

24 Kothari Road
Nungambakkam
Chennai, Tamilnadu 600034
India

G. Balasubramanian

Institute for Financial Management and Research, Nungambakkam ( email )

Chennai
Tamil Nadu
India

Chirackel Ahammed Yoonus

Institute for Financial Management and Research ( email )

24, Kothari Road
Nungambakkam
Chennai 600 034
India

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