Is Noise Trader Risk Priced?

Posted: 21 Apr 2000

See all articles by Richard W. Sias

Richard W. Sias

University of Arizona - Department of Finance

Laura T. Starks

University of Texas at Austin - Department of Finance

Seha M. Tinic

Koc University - Finance

Abstract

This study examines the hypothesis that closed-end fund shareholders garner greater returns than holders of the underlying assets as compensation for bearing "noise trader risk." We demonstrate that fund share returns are more volatile and exhibit greater mean reversion than the returns on the underlying assets consistent with the hypothesis that noise traders play a more active role in closed-end fund shares than the underlying assets. Inconsistent with the De Long, Shleifer, Summers, and Waldmann (1990) noise trader model, however, we find that once accounting for fund expenses, fund shareholders do not earn returns greater than holders of the underlying assets.

JEL Classification: G12

Suggested Citation

Sias, Richard W. and Starks, Laura T. and Tinic, Seha M., Is Noise Trader Risk Priced?. Available at SSRN: https://ssrn.com/abstract=216432

Richard W. Sias (Contact Author)

University of Arizona - Department of Finance ( email )

McClelland Hall
P.O. Box 210108
Tucson, AZ 85721-0108
United States

Laura T. Starks

University of Texas at Austin - Department of Finance ( email )

Red McCombs School of Business
Austin, TX 78712
United States
512-471-5899 (Phone)
512-471-5073 (Fax)

Seha M. Tinic

Koc University - Finance

Turkey

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