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Listening to the noise: On price efficiency with dynamic trading

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  • Arnold, Lutz G.
  • Russ, David

Abstract

This paper shows that, in the canonical dynamic rational expectations equilibrium model, public information about future noise trading is potentially detrimental to contemporaneous price efficiency. Our result supports concerns that social sentiment investing, sparked by growing availability of big data and advances in the way of processing it, exacerbates, rather than ameliorates, the negative impact of noise trading on price efficiency.

Suggested Citation

  • Arnold, Lutz G. & Russ, David, 2024. "Listening to the noise: On price efficiency with dynamic trading," International Review of Economics & Finance, Elsevier, vol. 93(PB), pages 103-120.
    • Handle: RePEc:eee:reveco:v:93:y:2024:i:pb:p:103-120
    DOI: 10.1016/j.iref.2024.04.024
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    References listed on IDEAS

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    More about this item

    Keywords

    Social sentiment investing; Price efficiency; Noise trading; Information aggregation;
    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

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