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, potentially for many years.^[1]^[2]

References

↑ Bodie, Z., Kane, A. and Marcus, A. J. Essentials of Investments, McGraw Hill Irwin, 2013, Chapter 8. ISBN 0078034698
↑ The Noisy Market Hypothesis, Wall Street Journal, Jeremy Siegel, June 14, 2006

Investment management
Investment fund structures	Common contractual fund Exchange-traded fund Fond commun de placement Fund of funds Index fund Investment trust Hedge fund Listed investment company Mutual fund Offshore fund Open-ended investment company Pension Fund Private equity fund Real estate investment trust Royalty trust SICAV Umbrella fund Unit investment trust Unit trust Unitised insurance fund
Investment styles	Active / passive management Impact investing Manager of managers Socially responsible investing Value / growth investing
Theory · Terminology	Closed-end fund Efficient-market hypothesis Net asset value Open-end fund
Related topics	Alternative investment Asset management firms Robo-advisor Returns-based style analysis Traditional investments UCITS

Financial markets
Types of markets	Primary market Secondary market Third market Fourth market
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Share capital	Authorised capital Issued shares Shares outstanding Treasury stock
Participants	Broker-dealer Day trader Floor broker Floor trader Investor Market maker Proprietary trader Quantitative analyst Regulator Stock trader
Exchanges	Electronic communication network List of stock exchanges Opening times Multilateral trading facility Over-the-counter
Stock valuation	Alpha Arbitrage pricing theory Beta Bid–ask spread Book value Capital asset pricing model Capital market line Dividend discount model Dividend yield Earnings per share Earnings yield Net asset value Security characteristic line Security market line T-model
Trading theories and strategies	Algorithmic trading Buy and hold Contrarian investing Day trading Dollar cost averaging Efficient-market hypothesis Fundamental analysis Growth stock Market timing Modern portfolio theory Momentum investing Mosaic theory Pairs trade Post-modern portfolio theory Random walk hypothesis Sector rotation Style investing Swing trading Technical analysis Trend following Value investing
Related terms	Block trade Cross listing Dark liquidity Dividend Dual-listed company DuPont analysis Efficient frontier Flight-to-quality Haircut Initial public offering Margin Market anomaly Market capitalization Market depth Market manipulation Market trend Mean reversion Momentum Open outcry Public float Public offering Rally Returns-based style analysis Reverse stock split Share repurchase Short selling Slippage Speculation Stock dilution Stock market index Stock split Trade Uptick rule Volatility Voting interest Yield

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Noisy market hypothesis

References

See also