Is It All Noise? The Microstructure Implications of Corporate Recurring Advertisements

61 Pages Posted: 2 Nov 2018 Last revised: 29 Aug 2023

See all articles by Vivian W. Fang

Vivian W. Fang

European Corporate Governance Institute (ECGI); Indiana University

Joshua Madsen

University of Minnesota - Twin Cities - Carlson School of Management

Xinyuan Shao

University of Minnesota - Twin Cities - Carlson School of Management

Date Written: August 28, 2023

Abstract

This paper studies the market microstructure implications of uninformed trading volume. We capture uninformed volume using spikes in retail trading triggered by weekly advertisements (ads) in the Wall Street Journal that are largely duplicates. We report three findings. First, consistent with a positive volume-volatility relation, stock price volatility amplifies on recurring ad days. Second, informed investors time liquidity to trade aggressively against retail investors early on recurring ad days. Third, despite the increase in informed trading on such days, price impact is lower, yielding a negative volume-price impact relation. Collectively, the evidence supports the theoretical predictions of Collin-Dufresne and Fos (2016).

Keywords: Advertising, Retail Trading, Price Volatility, Informed Trading, Price Impact

JEL Classification: G10, G12, G14, G23, M37

Suggested Citation

Fang, Vivian W. and Madsen, Joshua and Shao, Xinyuan, Is It All Noise? The Microstructure Implications of Corporate Recurring Advertisements (August 28, 2023). Available at SSRN: https://ssrn.com/abstract=3271851 or http://dx.doi.org/10.2139/ssrn.3271851

Vivian W. Fang (Contact Author)

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Indiana University ( email )

Bloomington, IN 47405
United States
47405 (Fax)

Joshua Madsen

University of Minnesota - Twin Cities - Carlson School of Management ( email )

19th Avenue South
Minneapolis, MN 55455
United States

Xinyuan Shao

University of Minnesota - Twin Cities - Carlson School of Management ( email )

19th Avenue South
Minneapolis, MN 55455
United States

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