Noise Trading: An Ad-based Measure

49 Pages Posted: 2 Nov 2018 Last revised: 24 Sep 2019

See all articles by Vivian W. Fang

Vivian W. Fang

University of Minnesota - Twin Cities - Department of Accounting

Joshua Madsen

University of Minnesota - Twin Cities - Carlson School of Management

Xinyuan Shao

University of Minnesota - Twin Cities - Department of Accounting

Date Written: September 23, 2019

Abstract

This paper proposes a novel measure of noise trading that aims to capture uninformed retail trading. The measure, an indicator of whether the firm placed advertisement(s) in the Wall Street Journal seven calendar days earlier, is motivated by evidence that retail trading spikes seven days after ad days, that firms regularly place ads at weekly intervals, and that weekly ads frequently contain duplicate images. This ad-based measure is positively associated with informed trading and stock price volatility, yet also negatively associated with adverse selection. Collectively, our results provide broad support for the theoretical predictions of Collin‚ÄźDufresne and Fos (2016, Econometrica).

Keywords: Advertising, Noise Trading, Informed Trading, Retail Trading, Stock Liquidity, Price Volatility, Adverse Selection, Image Analysis

JEL Classification: G10, G12, G14, G23, M37

Suggested Citation

Fang, Vivian W. and Madsen, Joshua and Shao, Xinyuan, Noise Trading: An Ad-based Measure (September 23, 2019). Available at SSRN: https://ssrn.com/abstract=3271851 or http://dx.doi.org/10.2139/ssrn.3271851

Vivian W. Fang (Contact Author)

University of Minnesota - Twin Cities - Department of Accounting ( email )

321 19th Avenue South
Room 3-109
Minneapolis, MN 55455
United States

HOME PAGE: http://www.vivianfang.org

Joshua Madsen

University of Minnesota - Twin Cities - Carlson School of Management ( email )

19th Avenue South
Minneapolis, MN 55455
United States

Xinyuan Shao

University of Minnesota - Twin Cities - Department of Accounting ( email )

271 19th Avenue South
Room 645 Mgt. Econ. Building
Minneapolis, MN 55455
United States

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