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Conference Paper: Noise Trading and Asset Pricing Factors
| Title | Noise Trading and Asset Pricing Factors |
|---|---|
| Authors | |
| Issue Date | 2020 |
| Citation | 55th Annual Conference of the Western Finance Association (WFA), Virtual conference, 19-22 June 2020
How to Cite? |
| Abstract | We demonstrate that a broad set of asset pricing factors (anomalies) are significantly exposed to “noise trader risk,” and the noise trader risk is priced in factor premia. Since mutual fund investors are ignorant of asset pricing factors, we confirm that mutual funds’ flow-induced trades of factors are uninformed as they have a large price impact on factor returns, followed by a complete reversal. We then show asset pricing factors are subject to noise trader risk in that expected variation and covariation of flow-induced noise trading strongly forecast variance and covariance of factor returns. Importantly, we find that factor premium is higher when the flow-driven noise trader risk is more salient.
|
| Description | Session: Behavioral Asset Pricing |
| Persistent Identifier | http://hdl.handle.net/10722/285000 |
| DC Field | Value | Language |
|---|---|---|
| dc.contributor.author | Huang, S | - |
| dc.contributor.author | Song, Y | - |
| dc.contributor.author | Xiang, H | - |
| dc.date.accessioned | 2020-08-07T09:05:26Z | - |
| dc.date.available | 2020-08-07T09:05:26Z | - |
| dc.date.issued | 2020 | - |
| dc.identifier.citation | 55th Annual Conference of the Western Finance Association (WFA), Virtual conference, 19-22 June 2020 | - |
| dc.identifier.uri | http://hdl.handle.net/10722/285000 | - |
| dc.description | Session: Behavioral Asset Pricing | - |
| dc.description.abstract | We demonstrate that a broad set of asset pricing factors (anomalies) are significantly exposed to “noise trader risk,” and the noise trader risk is priced in factor premia. Since mutual fund investors are ignorant of asset pricing factors, we confirm that mutual funds’ flow-induced trades of factors are uninformed as they have a large price impact on factor returns, followed by a complete reversal. We then show asset pricing factors are subject to noise trader risk in that expected variation and covariation of flow-induced noise trading strongly forecast variance and covariance of factor returns. Importantly, we find that factor premium is higher when the flow-driven noise trader risk is more salient. | - |
| dc.language | eng | - |
| dc.relation.ispartof | Western Finance Association (WFA) Virtual Conference | - |
| dc.title | Noise Trading and Asset Pricing Factors | - |
| dc.type | Conference_Paper | - |
| dc.identifier.email | Huang, S: huangsy@hku.hk | - |
| dc.identifier.authority | Huang, S=rp02052 | - |
| dc.identifier.hkuros | 312019 | - |
| dc.publisher.place | United States | - |