Is It All Noise? The Microstructure Implications of Corporate Recurring Advertisements
61 Pages Posted: 2 Nov 2018 Last revised: 29 Aug 2023
Date Written: August 28, 2023
This paper studies the market microstructure implications of uninformed trading volume. We capture uninformed volume using spikes in retail trading triggered by weekly advertisements (ads) in the Wall Street Journal that are largely duplicates. We report three findings. First, consistent with a positive volume-volatility relation, stock price volatility amplifies on recurring ad days. Second, informed investors time liquidity to trade aggressively against retail investors early on recurring ad days. Third, despite the increase in informed trading on such days, price impact is lower, yielding a negative volume-price impact relation. Collectively, the evidence supports the theoretical predictions of Collin-Dufresne and Fos (2016).
Keywords: Advertising, Retail Trading, Price Volatility, Informed Trading, Price Impact
JEL Classification: G10, G12, G14, G23, M37
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