Volume 29, Issue 4, 2020
Noise Trading and Abnormal Return in Stock Market
This study analyzes the relationship between noise trading and abnormal returns on assets. This study first validates the positive correlation between noise trading and abnormal returns on assets. In markets with high noise trading, the higher the abnormal returns on its assets, and vice versa. In exploring the relationship between noise trading and asset yield, this study uses abnormal return as a new indicator proposed in recent years for analysis. When analyzing the impact of company fundamentals on return on assets, the variables of company fundamentals are integrated using clustering analysis and principal component analysis. This suggests that in the long run there is a mutual causal relationship between noise trading and abnormal returns on assets. The results of this study show that the deviation from the interaction of noise trades and abnormal returns can be corrected and reach the equilibrium in the long run.
noise trade, abnormal return, long-term equilibrium relationship, causal relationship