Noise Trading: An Ad-based Measure

45 Pages Posted: 2 Nov 2018 Last revised: 11 Mar 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: March 9, 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 on ad days, that firms regularly place ads at weekly intervals, and that weekly ads frequently contain duplicate images. Instrumented retail trading is positively associated with informed trading and stock price efficiency, which suggests that informed investors anticipate increases in noise trading and trade accordingly.

Keywords: Advertisement, Noise Trading, Uninformed Trading, Informed Trading, Retail Trading, Institutional Trading, Stock Liquidity, Price Efficiency, 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 (March 9, 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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