Flow-induced Noise Trading and Asset Pricing Factors

UNIVERSITY OF TECHNOLOGY SYDNEY
Finance Department
Research Seminars in Finance

Topic: Flow-induced Noise Trading and Asset Pricing Factors

Speaker: Shiyang Huang, University of Hong Kong

Abstract: We demonstrate that a large set of asset pricing factors (anomalies) are significantly exposed to “noise trader” risk, which arises from demand shifts of mutual fund investors. Mutual fund investors are largely ignorant about systematic factors when allocating capital among mutual funds. We measure the non-fundamental demand of factors by aggregating flow-induced trades of individual stocks underlying the factors. We find that mutual funds’ flow-induced trades significantly determine returns, variations, and comovements among a large collection of well-studied factors. Importantly, we show that the flow-driven “noise trader” risk is significantly priced by arbitrageurs and other investors.

Date: Wednesday, 23 October 2019
Time: 12.00 – 1.00 p.m.
Venue: University of Technology, Sydney
               Building 8, Room 08.002, Dr Chau Chak Wing Building
               Dr Chau Chak Wing Building
              14 - 28 Ultimo Road, Ultimo

Co-ordinator: Claire Liu  (Ph: +61 2 9514 7748)

Enquiries: Mala Kapahi (Ph: +61 2 9514 7777)

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Acknowledgement of Country

UTS acknowledges the Gadigal people of the Eora Nation, the Boorooberongal people of the Dharug Nation, the Bidiagal people and the Gamaygal people, upon whose ancestral lands our university stands. We would also like to pay respect to the Elders both past and present, acknowledging them as the traditional custodians of knowledge for these lands.