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At present, the proportion of individual financial investors in China is relatively high, the phenomenon of noisy trading is frequent, and the market system risk caused by the polarization of investor sentiment cannot be ignored. Therefore, exploring the polarization of investor sentiment under the influence of sudden financial events is of great practical significance for alleviating abnormal fluctuations in financial markets and building a long-term and stable market mechanism. Based on the B–A scale-free network and J–A model, this paper combines the multi-agent system and the DSSW model to construct a polarization model of investor sentiment. Through simulation tests and empirical tests, it is concluded that the polarization of investor sentiment stems from the herd effect and exclusion effect of investor behavior, and that increasing the coefficient of destabilization ε and reducing the effect interval threshold D1 and D2 will aggravate the polarization of investor sentiment in the equilibrium state, while increasing the effect parameter α and β will not affect the polarization of investor sentiment in the equilibrium state, but will accelerate the number of interactions required to reach the equilibrium state. Finally, this paper puts forward targeted policy recommendations to provide references for responding to unexpected financial events.

The study examined the effect of investor sentiment on future returns in the Nigerian stock market. The OLS regression and granger causality techniques were employed for data analyses. The results showed that (1) investor sentiment has a significant positive effect on stock market returns even after control for fundamentals such as Industrial production index, consumer price index and Treasury bill rate; (2) there is a uni-directional causality that runs from change in investor sentiment (ΔCCI) to stock market returns (Rm). Derived finding showed that the inclusion of fundamentals increased the explanatory power of investor sentiment from 3.96% to 33.05%, though at both level, investor sentiment (ΔCCI) has low explanatory power on stock market returns. The study posits existence of a dynamic relationship between investor sentiment and the behaviour of stock future returns in Nigeria such that higher sentiment concurrently leads to higher stock prices.

PurposeThe purpose of this paper is to examine whether the mandatory adoption of International Financial Reporting Standards (IFRS) has produced an impact on the level of noise trading and volatility dynamics in three major central and eastern European (CEE) markets.Design/methodology/approachThe paper employs the theoretical framework proposed by Sentana and Wadhwani to allow the existence of both rational investors and trend‐chasing traders in examining the extent to which mandatory IFRS adoption affects the level of noise trading and volatility in the market place.FindingsThe results show that noise trading was mostly significant prior to the IFRS introduction, with its significance dissipating following the implementation. Moreover, the paper finds that the level and persistence of stock return volatility has greatly decreased after the implementation of IFRS.Research limitations/implicationsThese findings are important in understanding the effect of IFRS adoption on the information environment and market dynamics and bear some important implications for the corporate managers, accounting professions and policy makers. For instance, the documented dissipation in noise trading post‐IFRS implies that the activity in the sample markets is dominated by rational fundamental investors for whom financial reports constitute part of their decision‐making input. Thus, it is crucial that the enforcement of IFRS constitutes a key priority of local authorities as a contributing factor to the efficiency and transparency of the market environment.Practical implicationsThe finding that moving towards the international accounting standards helps to improve the quality and stability of financial markets should provide a useful reference for many other countries which have recently introduced and/or been considering switching to IFRS as their mandatory accounting standards.Originality/valueThis paper provides the first investigation of the effect of accounting standards’ harmonization upon the level of noise trading and volatility of three major transition markets (the Czech Republic, Hungary, and Poland) in the CEE area.

This paper empirically tests the sentiment and ¡§noise¡¨ effects in Singapore REITs (S-REIT) over the periods from January 2005 to December 2010.Our empirical results show that trading volume is significantly and negatively correlated with price to net asset value (P/NAV) premiums in the contemporary term. However, lagged trading volume is found to have positive effects on P/NAV premiums, which imply that herd activities of uninformed investors in the last period drive up REIT stock prices. The finding supports the sentiment hypothesis, but rejects the fundamental argument on P/NAV deviations. We find that the sentiment effects are asymmetric. The sentiment effects are not observed in the ¡§hot¡¨ markets during the pre-subprime crisis periods. However, the negative relations between trading volume and P/NAV premiums disappear in the post-crisis periods in 2008.

Seit Mitte 2007 sind die Preise für Grundnahrungsmittel wie Reis, Mais und Weizen bei international gehandelten Sorten dramatisch gestiegen. In welchem Umfang zu dieser Entwicklung Spekulationen an den Rohstoffmärkten beigetragen haben, lässt sich nicht beziffern. Unabhängig davon setzt eine langfristige Überwindung der gegenwärtigen und künftigen Versorgungsengpässe, unter anderem Investitionen in effizientere Agrartechnologien und Infrastrukturen voraus. Hier ist die internationale Gemeinschaft gefragt. Neben lokalen Strukturhilfemaßnahmen sollte sie den Abbau von internationalen Handelsbarrieren im Agrarbereich weiter vorantreiben. Der erhoffte Strukturwandel kann jedoch gehemmt werden, wenn Agrarproduzenten sowohl der Marktmacht der nachfragenden Händler als auch der Angebotsmacht von Vorleistungslieferanten ausgesetzt sind. Daher erscheint die Kontrolle von Marktmachtmissbräuchen auch auf internationaler Ebene zwingend, um die Funktionsfähigkeit von Agrarmärkten und schließlich die Sicherheit der Versorgung mit Nahrungsmitteln zu erhöhen.

In this paper we discuss popular market and default risks modeling. We highlight some shortcomings. Then, we present the prospect and cumulative prospect theories. We discuss again the previous models under behavioral finance framework and get different results. Based on these results, we propose a new Value at Risk measure and make suggestions on other measures.

We test the hypothesis that individual investors contribute to the idiosyncratic volatility of stock returns because they act as noise traders. To this end, we consider a reform that makes short selling or buying on margin more expensive for retail investors relative to institutions, for a subset of French stocks. If retail investors are noise traders, theory implies that the volatility of stocks affected by the reform should decrease relative to other stocks. This prediction is borne out by the data. Moreover, around the reform, we observe a significant decrease in (i) the magnitude of returns reversals, and (ii) the Amihud ratio for the stocks affected by the reform relative to other stocks. We show that these findings are also consistent with models in which individual investors, acting as noise traders, are a source of volatility.

This paper develops and simulates a model of a Bayesian market maker who transacts with noise and position traders in derivative markets. The impact of noise trading is examined relative to price determination in FX futures, noise transmission from futures to options, and risk-management behaviour linking the two markets. The model simulations show noise trading in futures results in wider bid–ask spreads, increased price volatility, and greater variation in hedging costs. Above all, the Bayesian market maker manages price-risk by trend chasing not for speculative purposes, but to avoid being caught on the wrong side of the market. The pecuniary effects from this risk-management strategy suggest that noise trading tends to constrain the market maker’s capacity to arbitrage; particularly when the underlying price is mean averting as opposed to a Martingale and trading sessions exhibit significant price volatility. Copyright r 2008 John Wiley & Sons, Ltd. Copyright r 2008 John Wiley & Sons, Ltd.

The underperformance of high idiosyncratic volatility stocks, as documented by Ang, Hodrick, Ying, and Zhang (2006, JF), is a pure non-January phenomenon. This non-January negative relation between idiosyncratic volatility and stock returns is more pronounced among firms with greater constraints in short selling, and when short-sale constraints are mitigated from the introduction of options and the end of the IPO lockup period. Apart from an average underperformance, highly volatile stocks also have the greatest dispersion in expected returns and in price reactions around earnings announcements. These findings support behavioral models suggesting that noise trading and investor overconfidence, combined with short-sale constraints, generate excess volatility, greater mispricing, and on average lower expected returns.

A number of empirical studies have reported the result that exchange rates show a delayed overshooting in response to monetary policy shocks. This result is puzzling. Economic theory suggests that the overshooting should occur immediately after the shock, not with a delay. This paper uses a ‘new open economy macroeconomics’ model with pricing-to-market to analyze whether the assumption of noise trading in the foreign exchange market helps to resolve the delayed overshooting puzzle. The implications of noise trading for the effects of monetary policy shocks on the nominal and on the real exchange rate are analyzed.

This paper uses a dynamic general equilibrium optimizing two-country model to analyze how the formation of exchange rate expectations shapes the effects of monetary policy shocks in open economies. The model implies that the short-run output effects of permanent monetary policy shocks diminish if 'noise traders' in the foreign exchange market form regressive exchange rate expectations. If the influence of these noise traders is strong enough, a permanent expansionary monetary policy shock can result in a temporary decline of the output in the country in which it takes place. The output effects of temporary monetary policy shocks are magnified when noise traders form regressive exchange rate expectations.

This paper evaluates the welfare implications of front-running by mutual fund managers. It extends the model of Kyle (1985) to a situation in which the insider with fundamentals-information competes against an insider with trade-information and in which noise trading is endogenized. Noise traders are small investors trading through mutual funds to hedge non-tradable or illiquid assets. The insider with trade-information is one of the fund managers. We find that front-running activity reduces their customers’ liquidity costs, but it also reduces their hedging benefits. As a result, the customers of the front-running manager may be worse off and place smaller orders. The opposite is true, for those investors who are not subject to front-running, however. In aggregate, front-running will either have no effect, or have a positive effect on welfare.