A Theory of Noise Trading in Securities Markets
In a recent article, F. Black introduces the concept of noise trading, defin ed as trading on noise as if it were information. He asserts that suc h trading must be a significant factor in securities markets, but doe s not explain why investors would rationally trade on noise. The goal of this paper is to provide such an explanation for one type of inve stor, managers of investment funds. As shown here, the incentive to e ngage in noise trading arises because of the positive signal that the manager's trading level provides about his or her ability to collect private information about security investments. Copyright 1988 by American Finance Association.
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Volume (Year): 43 (1988)
Issue (Month): 1 (March)
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