Law of Two Prices? Revisiting the Noise Trader Model of NAV Premiums

The impact of commercial airplane crashes on the shareholder wealth of US-listed airline stocks has been the focus of many prior studies, but none have explored the concomitant impact on trading volume. We expand the scope of prior studies to include near crashes. We examine 262 ‘incidents’ from 1962 to 2018 (220 with return evidence) and document a significant (negative) wealth impact for crashes with fatalities and casualties, and an insignificant impact for incidents with no casualties. We find that log-transformed trading volume spikes upward in the three-day crash-period window and that trading volume remains abnormally high in the three plus weeks that follow the crash when casualties occur. We interpret the high level of post-event trading to be consistent with a noise trader hypothesis: naïve trading hoping to take advantage of airline stock over-reaction – which we do not detect.

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GARCH in spinor field

International Journal of Geometric Methods in Modern Physics ◽

10.1142/s0219887819500993 ◽

2019 ◽

Vol 16 (07) ◽

pp. 1950099

Author(s):

Richard Pincak ◽

Kabin Kanjamapornkul

Keyword(s):

Time Series ◽

Gauge Group ◽

Spinor Field ◽

Mirror Symmetry ◽

Euclidean Plane ◽

Financial Time Series ◽

Equivalent Form ◽

Yang Mills ◽

Noise Trader ◽

Financial Time

We extend generalized autoregressive conditional heteroscedastic (GARCH) errors in the Euclidean plane of the scalar field to the tensor field and to the spinor field [Formula: see text], the so-called spinor garch, S-GARCH. We use the model of S-GARCH to explain the stylized fact in financial time series, the so-called volatility cluster, by using hyperbolic coordinate with induced complex lag of delay time scale in mirror symmetry concept. As the result of this theory, we obtain an equivalent form of Yang–Mills equation for financial time series as the interaction between the behavior of traders, the so-called, fundamentalist, chatlist and noise trader, by using volatility in spinor field with invariant of the gauge group [Formula: see text], the so-called modeling of the financial market in icosahedral supersymmetry gauge group.

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The Noise Trader Approach to Finance

The Journal of Economic Perspectives ◽

10.1257/jep.4.2.19 ◽

1990 ◽

Vol 4 (2) ◽

pp. 19-33 ◽

Cited By ~ 752

Author(s):

Andrei Shleifer ◽

Lawrence H Summers

Keyword(s):

Financial Markets ◽

Investor Sentiment ◽

Efficient Markets ◽

Risky Assets ◽

Noise Trader ◽

Security Returns

This paper reviews an alternative to the efficient markets approach that we and others have recently pursued. Our approach rests on two assumptions. First, some investors are not fully rational and their demand for risky assets is affected by their beliefs or sentiments that are not fully justified by fundamental news. Second, arbitrage—defined as trading by fully rational investors not subject to such sentiment—is risky and therefore limited. The two assumptions together imply that changes in investor sentiment are not fully countered by arbitrageurs and so affect security returns. We argue that this approach to financial markets is in many ways superior to the efficient markets paradigm.

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