Noise trader

Noise trading (on German about action of noise or noise trading ) describes in behavioral economics ( behavioral finance ) an irrational behavior of financial market participants. Noise traders try - as opposed to " Smart Money Trader" - " date new information to" exploit on investment instruments (eg a rumor about the development of a share). In this case, these actors base their investment decisions on what is called the efficient market hypothesis is not fundamental data.

Positive vs. negative noise trading

Among other things, a distinction between the

Re ( 1): The positive feedback traders observed a rise in stock prices in the past and responds with a purchase decision. Accordingly, he responds with a decision to sell an observation of recent price cuts. The decisions infringe the weakest form of market efficiency hypothesis, which states that past data in the course are included.

Re (2 ): the negative feedback traders sold at things past price increases and buy at past price reduction.

Consequences of positive feedback trading

• Mean Reversion: when the prices adjust back to the "rational " value
• About Action: Use positive feedback trading it comes to overshoot in prices.
• Excessive Volatility: Positive feedback trading increases volatility ( fluctuation ) of the share prices.
• Positive autocorrelated returns: This contradicts the efficient markets hypothesis, according to which no pattern may occur in price movements.

• Capital Market Theory
• Market research
• Industrial and organizational psychology