Noisy market hypothesis

Noisy market hypothesis: Financial markets

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In finance, the noisy market hypothesis contrasts the efficient-market hypothesis in that it claims that the prices of securities are not always the best estimate of the true underlying value of the firm. It argues that prices can be influenced by speculators and momentum traders, as well as by insiders and institutions that often buy and sell stocks for reasons unrelated to fundamental value, such as for diversification, liquidity and taxes. These temporary shocks referred to as "noise" can obscure the true value of securities and may result in mispricing of these securities for many years.^[1]

References

^ The Noisy Market Hypothesis, Wall Street Journal, Jeremy Siegel, June 14, 2006

v · d · eStock market

Types of stocks
Common stock · Concentrated stock · Golden share · Growth stock · Issued shares · Preferred stock · Restricted stock · Shares authorized · Shares outstanding · Tracking stock · Treasury stock

Participants
Broker-dealer · Floor broker · Floor trader · Investor · Market maker · Proprietary trader · Quantitative analyst · Stock trader

Exchanges
Electronic communication network · Market opening times · Over-the-counter · Stock exchange (list) · Multilateral trading facility

Stock valuation
Alpha · Arbitrage pricing theory · Beta · Book value · CAPM · Dividend yield · Earnings per share · Earnings yield · Gordon model · SCL · SML · T-Model

Financial ratios
Cap rate · D/E ratio · Dividend cover · Dividend payout ratio · EV/EBITDA · EV/GCI · EV/Sales · CROCI · P/B ratio · P/CF ratio · P/E · PEG · P/S ratio · RAROC · ROA · ROCE · ROE · ROTE · ROIC · SGR · Sharpe ratio · Treynor ratio

Trading theories
and strategies
Algorithmic trading · Buy and hold · Contrarian investing · Day trading · Efficient-market hypothesis · Fundamental analysis · Market timing · Modern portfolio theory · Momentum investing · Mosaic theory · Pairs trade · Post-modern portfolio theory · Random walk hypothesis · Style investing · Swing trading · Technical analysis · Trend following

Related terms
Block trade · Cross listing · Dark liquidity · Dividend · Dual-listed company · DuPont Model · Flight-to-quality · Haircut · IPO · Margin · Market anomaly · Market capitalization · Market depth · Market manipulation · Market trend · Mean reversion · Momentum · Open outcry · Public float · Rally · Reverse stock split · Share capital · Short selling · Slippage · Speculation · Stock dilution · Stock split · Trade · Uptick rule · Volatility · Voting interest · Stock market index

Categories:
Economic theory stubs
Financial markets
Economic efficiency
Economic theories
Financial economics
Behavioral finance

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Noisy market hypothesis

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