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Noise trading, institutional trading, and opinion divergence: Evidence on intraday data in the Chinese stock market

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  • Hu, Yingyi
  • Zhao, Tiao
  • Zhang, Lin

Abstract

This study proposes a measure of opinion divergence based on the trading process and investigates the effect of noise trading and institutional trading on the influence of opinion divergence on stock returns using intraday data. The results show that, although for 5-min intervals, the divergence of opinion is not negatively related to future stock returns, for 10-min intervals and beyond, divergence of opinion becomes negatively related to future stock returns, as proposed by Miller (1977). By differentiating the measure of divergence of opinion from the measure of noise trading and institutional trading, we provide solid evidence that institutional trading affects the relation between divergence of opinion and future stock returns, on which noise trading does not seem to have any effect. However, the effect of institutional trading is mainly due to the fact that stocks with high institutional trading have low divergence of opinion, rather than being a result of sophistication and good stock-picking skills among institutional traders.

Suggested Citation

  • Hu, Yingyi & Zhao, Tiao & Zhang, Lin, 2020. "Noise trading, institutional trading, and opinion divergence: Evidence on intraday data in the Chinese stock market," International Review of Economics & Finance, Elsevier, vol. 68(C), pages 74-89.
    • Handle: RePEc:eee:reveco:v:68:y:2020:i:c:p:74-89
    DOI: 10.1016/j.iref.2020.03.012
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    More about this item

    Keywords

    Asset pricing; Heterogeneous belief; Institutional trading; Noise trading;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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