Noise Trader Risk Exists . . . But the Noise Traders are Not Who You Think They are

Posted: 30 May 2003

See all articles by Andrew Jackson

Andrew Jackson

Vinva Investment Management; London Business School

Date Written: November 11, 2002


Using a unique dataset of individual investor trades, this paper examines whether there is evidence of noise trader risk in a broad equity market context. The paper finds evidence of excess volatility and excess correlations between stocks. Additionally factor-pricing tests reveal strong evidence of a significant priced noise trader factor in returns. The paper concludes that there is evidence of noise trader risk, however this risk is not associated with individual investors, but instead with institutional investors. Institutional frictions such as common investment strategies, performance related mutual fund flows and career concerns are a much more plausible source of noise trader risk than is individual investor sentiment.

Keywords: Noise trader risk, individual investors, institutional frictions, sentiment, excess volatility, co-movement

JEL Classification: G1

Suggested Citation

Jackson, Andrew, Noise Trader Risk Exists . . . But the Noise Traders are Not Who You Think They are (November 11, 2002). Available at SSRN:

Andrew Jackson (Contact Author)

Vinva Investment Management ( email )

L13 10 Bridge Street
Sydney, 2000


London Business School ( email )

Sussex Place
Regent's Park
London NW1 4SA
United Kingdom

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