Noise Momentum Around the World

Noise Momentum Around the World We argue that arbitrageurs will strategically limit their initial investment in an arbitrage opportunity in anticipation of further mispricing caused by the deepening of noise traders' misperceptions. Such ‘noise momentum’ is an important determinant of the overall arbitrage process. We design an empirical strategy to capture noise momentum in a two‐period generalized error correction model. Applying it to a wide range of international spot‐futures market pairs, we document pervasive evidence of noise momentum around the world. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Abacus Wiley

Noise Momentum Around the World

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Publisher
Wiley Subscription Services, Inc., A Wiley Company
Copyright
© 2018 Accounting Foundation, The University of Sydney
ISSN
0001-3072
eISSN
1467-6281
D.O.I.
10.1111/abac.12101
Publisher site
See Article on Publisher Site

Abstract

We argue that arbitrageurs will strategically limit their initial investment in an arbitrage opportunity in anticipation of further mispricing caused by the deepening of noise traders' misperceptions. Such ‘noise momentum’ is an important determinant of the overall arbitrage process. We design an empirical strategy to capture noise momentum in a two‐period generalized error correction model. Applying it to a wide range of international spot‐futures market pairs, we document pervasive evidence of noise momentum around the world.

Journal

AbacusWiley

Published: Jan 1, 2018

Keywords: ; ; ;

References

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