Identifying Noise Traders: The Head-and-Shoulders Pattern in U.S. Equities
74 Pages Posted: 20 Oct 2006
Date Written: July 1998
This paper identifies a specific set of agents as noise traders in U.S. equity markets, and examines their effects on returns. These agents, who speculate using the "head-and-shoulders" chart pattern, are shown to qualify as noise traders because (1) trading volume is exceptionally high when they are active, and (2) their trading is unprofitable. Head-and-shoulders sales lower prices and vice versa, effects that disappear within two weeks.
JEL Classification: G12, G14
Suggested Citation: Suggested Citation