Abstract
This paper provides empirical evidence of the presence, proportion and trading behavior of noise traders in the U.S. equity market (S&P500 index). A simple methodology is used to estimate the heterogeneous agent asset pricing model involving noise traders’ risk, through GMM. Departing from previous estimations of heterogeneous agent models, it estimates fundamental price using the consumption-based asset pricing model and noise traders’ misperception as deviation from this price. It concludes that noise traders exist in the S&P500, they exaggerate price expectations as compared to fundamental traders, and traders (or investors) are rational, on average.
Keywords
Asset pricing, Heterogeneous beliefs, Noise traders, Representative agent model
DOI
https://doi.org/10.54784/1990-6587.1014
Creative Commons License
This work is licensed under a Creative Commons Attribution 4.0 International License.
Recommended Citation
Ahmed, M. F. (2019). Estimating proportion of noise traders and asset prices. Business Review, 14(2), 1-12. Retrieved from https://doi.org/10.54784/1990-6587.1014
