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Who Are The Noise Traders?

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  • J. Christopher Hughen
  • Cynthia G. McDonald

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. 2005 The Southern Finance Association and the Southwestern Finance Association.

Suggested Citation

  • J. Christopher Hughen & Cynthia G. McDonald, 2005. "Who Are The Noise Traders?," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 28(2), pages 281-298.
  • Handle: RePEc:bla:jfnres:v:28:y:2005:i:2:p:281-298
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    Cited by:

    1. repec:ris:sphecs:0259 is not listed on IDEAS
    2. Delcoure, Natalya & Zhong, Maosen, 2007. "On the premiums of iShares," Journal of Empirical Finance, Elsevier, vol. 14(2), pages 168-195, March.
    3. repec:eee:finlet:v:23:y:2017:i:c:p:58-64 is not listed on IDEAS
    4. Huang, Emily J., 2015. "The role of institutional investors and individual investors in financial markets: Evidence from closed-end funds," Review of Financial Economics, Elsevier, vol. 26(C), pages 1-11.
    5. Navon, David & Kaplan, Todd & Kasten, Ronen, 2013. "Egocentric framing - one way people may fail in a switch dilemma: Evidence from excessive lane switching," MPRA Paper 50032, University Library of Munich, Germany.

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