NOISE TRADER RISK: EVIDENCE FROM VIETNAM STOCK MARKET
Vol. 128 No. 5C (2019), Original Article
Vol. 128 No. 5C (2019)

NOISE TRADER RISK: EVIDENCE FROM VIETNAM STOCK MARKET

Original Article
https://doi.org/10.26459/hueuni-jed.v128i5C.5083
Published 2019-03-19
Phan Khoa Cuong
College of Economics, Hue University
Tran Thi Bich Ngoc
College of Economics, Hue University
Bui Thanh Cong
College of Economics, Hue University
Vo Thi Quynh Chau
College of Economics, Hue University
PDF

Keywords

Noise trader risk
GARCH(1
1)
Vietnam stock market

Abstract

Abstract: This paper investigates the existence of noise trader risk in Vietnam’s stock market and its effect on the daily returns of stock prices. The methodologies contain the estimation of GARCH (1,1) model to filter the residuals using the moving average method to calculate the impact of information traders. Noise trader risk or the risk that is caused by noise traders is derived by subtracting the residuals by the rational traders’ impact. We find that the noise trader risk does exist in Vietnam’s stock market and its impact on daily returns of stocks is unpredictable. Meanwhile, we find a positive impact of information traders on the stock returns. It increases the daily stock returns, and in turn, helps the market to correct itself because the stock prices move back to its fundamental value.

Keywords: noise trader risk, GARCH (1,1), Vietnam’s stock market

https://doi.org/10.26459/hueuni-jed.v128i5C.5083
PDF

References

  1. Baker, M., & Stein, J. C. (2004), Market liquidity as a sentiment indicator. Journal of Financial Markets, 7(3), 271–299.
  2. Berkman, H., & Koch, P. D. (2008), Noise trading and the price formation process. Journal of Empirical Finance, 15(2), 232–250.
  3. Black, F. (1986). Noise. The journal of finance, 41(3), 528–543.
  4. Bloomfield, R., O’hara, M., & Saar, G. (2009), How noise trading affects markets: An experimental analysis. The Review of Financial Studies, 22(6), 2275–2302.
  5. Bollerslev, T., Chou, R. Y., & Kroner, K. F. (1992), ARCH modeling in finance: A review of the theory and empirical evidence. Journal of econometrics, 52(1–2), 5–59.
  6. Brown, G. W. (1999). Volatility, sentiment, and noise traders, Financial Analysts Journal, 55(2), 82–90.
  7. Brown, G. W., & Cliff, M. T. (2005), Investor sentiment and asset valuation. The Journal of Business, 78(2), 405–440.
  8. Campbell, J. Y., & Kyle, A. S. (1993), Smart money, noise trading and stock price behaviour. The Review of Economic Studies, 60(1), 1–34.
  9. Danthine, J.-P., & Moresi, S. (1993), Volatility, information and noise trading. European Economic Review, 37(5), 961–982.
  10. De Long, J. B., Shleifer, A., Summers, L. H., & Waldmann, R. J. (1990), Noise trader risk in financial markets. Journal of Political Economy, 98(4), 703–738.
  11. Engle, R. F., & Sheppard, K. (2001), Theoretical and empirical properties of dynamic conditional correlation multivariate GARCH: National Bureau of Economic Research.
  12. Feng, J., Lin, D.-p., & Yan, X.-b. (2014), Research on measure of noise trading in stock market based on EGARCH-M model, Paper presented at the Management Science & Engineering (ICMSE), 2014 International Conference on.
  13. Flynn, S. M. (2005), Arbitrage, Noise-trader Risk, and the Cross Section of Closed-end Fund Returns.
  14. Koski, J., Rice, E., & Tarhouni, A. (2004), Noise trading and volatility: Evidence from day trading and message boards.
  15. Kurov, A. (2008), Investor sentiment, trading behavior and informational efficiency in index futures markets. Financial Review, 43(1), 107–127.
  16. Lee, C. M., Shleifer, A., & Thaler, R. H. (1991), Investor sentiment and the closed‐end fund puzzle. The Journal of Finance, 46(1), 75–109.
  17. Lee, W. Y., Jiang, C. X., & Indro, D. C. (2002), Stock market volatility, excess returns, and the role of investor sentiment. Journal of Banking & Finance, 26(12), 2277–2299.
  18. Long, V. T. (2007), Empirical analysis of stock return volatility with regime change: The case of Vietnam stock market. Department of Economic development and policies.
  19. Nguyen Van, P. (2015), A good news or bad news has greater impact on the Vietnamese stock market?
  20. Palomino, F. (1996), Noise trading in small markets. The journal of finance, 51(4), 1537–1550.
  21. Peress, J., & Schmidt, D. (2014), Glued to the TV: the trading activity of distracted investors. Unpublished working paper, Insead, HEC Paris.
  22. Podolski, E., Kalev, P., & Duong, H. N. (2008), Deafened by Noise: Do Noise Traders Affect Volatility and Returns?
  23. Qiang, Z., & Shu-e, Y. (2009), Noise trading, investor sentiment volatility, and stock returns. Systems Engineering-Theory & Practice, 29(3), 40–47.
  24. Ramiah, V., & Davidson, S. (2007), Information-adjusted noise model: Evidence of inefficiency on the Australian stock market, The Journal of Behavioral Finance, 8(4), 209–224.
  25. Roh, T. H. (2007), Forecasting the volatility of stock price index. Expert Systems with Applications, 33(4), 916–922.
  26. Scruggs, J. T. (2007), Noise trader risk: Evidence from the Siamese twins. Journal of Financial Markets, 10(1), 76–105.
  27. Shefrin, H., & Statman, M. (1994), Behavioral capital asset pricing theory. Journal of financial and quantitative analysis, 29(3), 323–349.
  28. Sias, R. W., Starks, L. T., & Tiniç, S. M. (2001), Is noise trader risk priced? Journal of Financial Research, 24(3), 311–329.
  29. Thomas, D. C., & Wang, Q. (2013), Time-varying Noise Trader Risk and Asset Prices. Unpublished article.
  30. Verma, R., & Verma, P. (2007), Noise trading and stock market volatility. Journal of Multinational Financial Management, 17(3), 231–243.
  31. Xu, X., Ramiah, V., Moosa, I., & Davidson, S. (2016), An application of the information-adjusted noise model to the Shenzhen stock market, International Journal of Managerial Finance, 12(1), 71–91.