Noise (financial market)

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Noise is an anglicized ( German  "noise" ) in the stock exchange system , which for random volatility of stock prices is based not on price-sensitive fundamentals are based.

General

The price drivers of the stock exchange prices are therefore not only the intrinsic value of financial products (especially stocks ) based on economic indicators , but also irrational causes - the "noise". Corresponding non-fundamental causes are “noise”, whereas information is fundamentally relevant.

In the stock exchange system, “noise” should be translated as “noise” and not with the more closely related “noise”. This goes back to a 1986 in US literature used analogy back, consisting of Telecommunications , the "white noise" ( English white noise borrowed) a random disturbance. According to this understanding, “noise” is the basic noise of the capital market , the unsystematic action of market participants without any fundamental trigger. For this author, noise is “skewed probability distributions of future returns ”.

Market participants

That is why there are market participants who primarily trade on the stock market on the basis of fundamental information and others who pay attention to the “noise of the market”. The latter are the "noise traders ", they do not act on the basis of the rational principle , but on the basis of non-fundamental rumors . With regard to noise, a distinction must be made between the arbitrageurs with completely rational and undistorted expectations regarding the stock return and irrationally acting “noise traders”. Their atypical behavior comes about because their trading decisions are based on noise or "pseudo signals" that they mistakenly classify as market-relevant information. The pseudo signals include recommendations from chart analysts , stock market gurus or stock market letters , insofar as they are not based on fundamental analyzes.

"Noise traders" engage in " noise trading ", which causes random fluctuations in stock exchange prices. These “noise traders” are mostly market participants guided by herd behavior who are motivated by moods or groups to buy into rising prices ( bull market ) or sell into falling prices ( bear market ). This is the so-called “mood noise”. They also overreact to new information or uncritically extrapolate past market developments into the future. This noise can form the basis of both buying and selling decisions.

economic aspects

Exchange trading on exchanges is unthinkable without noise. The price risk arising from noise trading is correctly assessed in efficient exchanges and taken on by the noise traders themselves. In this way, they receive adequate compensation for the risk they have generated themselves and thus do not lose any money in the expected value through their behavior. The behavior of the noise traders influences the rational market participants insofar as they have to accept a higher risk premium given a given willingness to take risks . As a rule, financial markets have a relatively low background noise, which is measured as the ratio between the strength of a signal and the background noise ( English signal to noise ratio ). However, this ratio can be particularly high in sub-markets with a continuous flow of irrelevant information.

Individual evidence

  1. ^ Daniel C. Freiherr von Heyl, Noise als Finanzwirtschaftliches Phenomenon , 1995, p. 55
  2. ^ Fischer Black, Noise , in: The Journal of Finance no.3, 1986, p. 529
  3. ↑ Christian Röckemann, Exchange services and investor behavior: An empirical contribution to noise trading , 1995, p. 50
  4. ↑ Christian Röckemann, Exchange services and investor behavior: An empirical contribution to noise trading , 1995, p. 50
  5. ^ Fischer Black, Noise , in: The Journal of Finance no.3, 1986, p. 529
  6. ^ Christian Röckemann, Exchange services and investor behavior: An empirical contribution to noise trading , 1995, p. 50 f.
  7. ↑ Sylvia Mieszkowski / Sigrid Nieberle (eds.), Unlaute: Noise / Gerausch in Kultur, Medien und Wissenschaft since 1900 , 2017, p. 346
  8. ↑ Andrei Shleifer , Inefficient Markets: An Introduction to Behavioral Finance , 2000, p 20
  9. ↑ Andrei Shleifer, Inefficient Markets: An Introduction to Behavioral Finance , 2000, p 23
  10. ^ Fischer Black, Noise , in: The Journal of Finance no.3, 1986, p. 531
  11. ↑ Waldemar Wagner, Nonlinear Time Series Analysis as a New Method for Event Studies , 2019, p. 258 f.
  12. ↑ Wolfgang Gerke, Gerke Börsen Lexikon , 2002, p. 574 f.
  13. ^ Daniel C. Freiherr von Heyl, Noise als Finanzwirtschaftliches Phenomenon , 1995, p. 52
  14. ↑ Bertram Scheufele / Alexander Haas, Medien und Aktien , 2008, p. 50
  15. ↑ Hamburg Chamber of Commerce (ed.), Die Hamburger Börse 1558-2008: Trends im Börsenwesen , 2008, p. 238
  16. ↑ Paul Windolf (ed.), Finanzmarkt-Kapitalismus: Analyzes for the Change of Production Regiment , in: Kölner Zeitschrift für Soziologie und Sozialpsychologie, special issue 45, 2005, p. 29 FN 24