Noise Trading: An Ad-based Measure
52 Pages Posted: 2 Nov 2018 Last revised: 2 Feb 2020
Date Written: January 30, 2020
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‐Dufresne 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
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