Noise trader

Short description: Stock trader who uses economic noise

A noise trader is a stock trader whose decisions to buy or sell are based on "factors they believe to be helpful but in reality will give them no better returns than random choices".[1] These factors may include hype or rumor, which noise traders believe to be reliable signals of future returns, but which are actually forms of economic noise that cannot be used to accurately predict the future value of a stock.[2]

Noise traders do not trade randomly; their decisions are systematic.[1] However, their trading decisions are not based on professional advice or a business's fundamentals,[2] and the purported signals used by noise traders are more unreliable than those used by technical analysts[citation needed].[1] Therefore, returns on their trading decisions are expected to be no better than random choices.[1]

Noise traders often act irrationally: they tend to be emotion-driven, impulsive, reactive, and herd-like.[3] The presence of noise traders in financial markets can cause prices and risk levels to diverge from expected levels even if all other traders are rational.[4]

## See also

* Noisy market hypothesis
* Quantitative analyst
* Behavioral economics

## Notes

1. ↑ 1.0 1.1 1.2 1.3 "Noise Trader Definition" (in en). Investopedia. https://www.investopedia.com/terms/n/noisetrader.asp.
2. ↑ 2.0 2.1 "Noise Trader - Definition, Current Numbers, Impact" (in en-US). https://corporatefinanceinstitute.com/resources/knowledge/trading-investing/noise-trader/.
3. ↑ Downey, Lucas. "Noise Trader Risk Definition" (in en). https://www.investopedia.com/terms/n/noisetraderrisk.asp.
4. ↑ DeLong, Bradford J.; Shleifer, Andrei; Summers, Larry; Waldmann, Robert J. (1990). "Noise Trader Risk in Financial Markets". The Journal of Political Economy 98 (4): 703–738. doi:10.1086/261703.

* v
* t
* e

Financial markets

Types of markets|

* Primary market
* Secondary market
* Third market
* Fourth market

Types of stocks|

* Common stock
* Golden share
* Preferred stock
* Restricted stock
* Tracking stock

Share capital|

* Authorised capital
* Issued shares
* Shares outstanding
* Treasury stock

Participants|

* Broker-dealer
* Day trader
* Floor broker
* Floor trader
* Investor
* Market maker
* Proprietary trader
* Quantitative analyst
* Financial law
* Regulator
* Stock trader

Exchanges|

* Electronic communication network
* List of stock exchanges
* Trading hours
* Multilateral trading facility
* Over-the-counter

Stock valuation|

* Alpha
* Arbitrage pricing theory
* Beta
* Bid–ask spread
* Book value
* Capital asset pricing model
* Capital market line
* Dividend discount model
* Dividend yield
* Earnings per share
* Earnings yield
* Net asset value
* Security characteristic line
* Security market line
* T-model

Trading theories
and strategies|

* Algorithmic trading
* Buy and hold
* Contrarian investing
* Day trading
* Dollar cost averaging
* Efficient-market hypothesis
* Fundamental analysis
* Growth stock
* Market timing
* Modern portfolio theory
* Momentum investing
* Mosaic theory
* Pairs trade
* Post-modern portfolio theory
* Random walk hypothesis
* Sector rotation
* Style investing
* Swing trading
* Technical analysis
* Trend following
* Value averaging
* Value investing

Related terms|

* Block trade
* Cross listing
* Dark pool
* Dividend
* Dual-listed company
* DuPont analysis
* Efficient frontier
* Flight-to-quality
* Government bond
* Haircut
* Initial public offering
* Long
* Margin
* Market anomaly
* Market capitalization
* Market depth
* Market manipulation
* Market trend
* Mean reversion
* Momentum
* Open outcry
* Position
* Public float
* Public offering
* Rally
* Returns-based style analysis
* Reverse stock split
* Share repurchase
* Short selling
* Slippage
* Speculation
* Stock dilution
* Stock exchange
* Stock market index
* Stock split
* Trade
* Uptick rule
* Volatility
* Voting interest
* Yield

0.00

(0 votes)

Original source: https://en.wikipedia.org/wiki/Noise trader. Read more

|

Retrieved from "https://handwiki.org/wiki/index.php?title=Finance:Noise_trader&oldid=392823"
*[v]: View this template
*[t]: Discuss this template
*[e]: Edit this template