An application of the information-adjusted noise model to the Shenzhen stock market

Xu, X, Vikash, V, Moosa, I and Davidson, S 2016, 'An application of the information-adjusted noise model to the Shenzhen stock market', International Journal of Managerial Finance, vol. 12, no. 1, pp. 71-91.


Document type: Journal Article
Collection: Journal Articles

Title An application of the information-adjusted noise model to the Shenzhen stock market
Author(s) Xu, X
Vikash, V
Moosa, I
Davidson, S
Year 2016
Journal name International Journal of Managerial Finance
Volume number 12
Issue number 1
Start page 71
End page 91
Total pages 21
Publisher Emerald Group Publishing Ltd.
Abstract Purpose - The purpose of this paper is to: first, test if information-adjusted noise model (IANM) can be applied in China; second, quantify noise trader risk, overreaction, underreaction and information pricing errors in that market; and third, explain the relationship between noise trader risk and return. Design/methodology/approach - The authors use a behavioural asset pricing model (BAPM), CAPM, the information-adjusted noise model and model proposed by Ramiah and Davidson (2010). Findings - The findings show that noise traders are active 99.7 per cent of the time on the Shenzhen A-share market. Furthermore, our results suggest that the Shenzhen market overreacts 41 per cent of the time, underreacts 18 per cent of the time and information pricing errors occur 40 per cent of the time. Originality/value - Various methods have been applied to the Chinese stock market in an effort to measure noise trading activities and all of them failed to account for information arrival. Our study uses a superior and alternative model to detect noise trader risk, overreaction and underreaction in China.
Subject Accounting, Auditing and Accountability not elsewhere classified
Keyword(s) BAPM
IANM
IPE
Noise traders
Overreaction
Underreaction
DOI - identifier 10.1108/IJMF-01-2015-0010
Copyright notice © Emerald Group Publishing Limited
ISSN 1743-9132
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