Who are the Noise Traders?

Posted: 27 May 2004

See all articles by J. Christopher Hughen

J. Christopher Hughen

University of Denver - Daniels College of Business

Cynthia G. McDonald

University of Missouri at Columbia - Department of Finance

Abstract

Closed-end funds often trade at a discount to net asset value. Previous research suggests that the positive correlation in discounts is associated with investor sentiment that causes systematic mispricing by noise traders. We use a newly available sample of daily fund valuations to examine the relation between intraday trading activity and discount changes. Contrary to the assumption that retail investors are noise traders, we find no relation between discount changes and the order-flow imbalances of individual investors. Large daily discount changes are associated with institutional trading, and this may reflect the price inelasticity of closed-end fund shares.

Keywords: Noise traders, closed-end funds, retail investors

JEL Classification: G10, G12

Suggested Citation

Hughen, John Christopher and McDonald, Cynthia G., Who are the Noise Traders?. Available at SSRN: https://ssrn.com/abstract=550882

John Christopher Hughen

University of Denver - Daniels College of Business ( email )

2101 S. University Blvd
Denver, CO 80208-8951
United States
303-803-6171 (Phone)

HOME PAGE: http://www.hughen.com

Cynthia G. McDonald (Contact Author)

University of Missouri at Columbia - Department of Finance ( email )

120 Middlebush Hall
Columbia, MO 65211
United States
(573) 882-0638 (Phone)
(573) 884-6296 (Fax)

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