Trading on Noise: Moving Average Trading Heuristics and Private Investors

67 Pages Posted: 7 Nov 2014

See all articles by Thomas Etheber

Thomas Etheber

Goethe University Frankfurt - Department of Finance

Andreas Hackethal

Goethe University Frankfurt - Faculty of Economics and Business Administration; Leibniz Institute for Financial Research SAFE

Steffen Meyer

University of Southern Denmark - Department of Business and Economics; Danish Finance Institute

Date Written: November 7, 2014

Abstract

We use a comprehensive dataset from a German discount brokerage firm to investigate both the prevalence and effects of moving average trading heuristics among individual investors. We document an abnormal increase of 30% in individuals’ trading volume on signal days. More than one in 10 investors repeatedly places trades according to these heuristics. However, abnormal returns from technical trades are found to be insignificant. Hence, our results are consistent with the interpretation that some individual investors -- contrary to the factual evidence -- believe in these signals and to that extent trade on noise.

Keywords: Investor heuristics, technical analysis, individual investors, noise trading

JEL Classification: D14, G11, G12, G14

Suggested Citation

Etheber, Thomas and Hackethal, Andreas and Meyer, Steffen, Trading on Noise: Moving Average Trading Heuristics and Private Investors (November 7, 2014). Available at SSRN: https://ssrn.com/abstract=2520346 or http://dx.doi.org/10.2139/ssrn.2520346

Thomas Etheber (Contact Author)

Goethe University Frankfurt - Department of Finance ( email )

GrĂĽneburgplatz 1
Frankfurt am Main, 60323
Germany

Andreas Hackethal

Goethe University Frankfurt - Faculty of Economics and Business Administration ( email )

Theodor-W.-Adorno Platz 3
Frankfurt am Main, 60323
Germany

Leibniz Institute for Financial Research SAFE ( email )

(http://www.safe-frankfurt.de)
Theodor-W.-Adorno-Platz 3
Frankfurt am Main, 60323
Germany

Steffen Meyer

University of Southern Denmark - Department of Business and Economics ( email )

DK-5230 Odense
Denmark

Danish Finance Institute ( email )

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