Noise Trading Approach of Capital Asset Pricing at Tehran Stock Exchange

Authors

  • Abdolmajid Abdolbaghi Ataabadi Assistant Professor of Finance, Department of Management, Faculty of Industrial Engineering & Management, Shahrood University of Technology
  • Rohollah Farhadi Assistant professor of Finance. Department of Management, Central Tehran branch, Islamic Azad University, Tehran, Iran
  • Solmaz Salami PhD Candidate of Financial Management, Central Tehran Branch, Islamic Azad University, Tehran, Iran
Abstract:

Noise traders as one of the key elements of the market play a significant role in determining the market volatilities, returns, and stock market mispricing. Hence, this study attempts to scrutinize the role of noise trading in capital asset pricing. Therefore, by using daily data, samples including 14105 data of 200 companies listed on stock exchange were selected and noise trading index was estimated based on Feng et al (2014). Then, using the panel method, monthly noise level of stock exchange was evaluated and the effect of noise factor on risk premium was modelled. Findings indicated that an increase in the noise level in the stock trading leads to a decrease in risk premium, however, stock fluctuations increase significantly. Moreover, the noise factor has a negative and significant effect on risk premiums. Also, market risk premium    and company size have a significant positive effect on risk premium.

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Journal title

volume 5  issue 17

pages  85- 94

publication date 2020-05-01

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