Is Noise Trader Risk Priced?
Posted: 21 Apr 2000
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: Suggested Citation