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Tug of war with noise traders? Evidence from the G7 stock markets

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  • Hajiyev, Aghamehman
  • Keiber, Karl Ludwig
  • Luczak, Adalbert

Abstract

This paper studies the tug of war between overnight noise trading and daytime arbitrage in the G7 stock markets. We confirm Akbas, Boehmer, Jiang, and Koch (2022) reporting that this tug of war predicts future returns in the US stock market. We verify this result also in the Canadian stock market. In contrast, for the stock markets of France, Germany, Italy, the UK, and Japan, this tug of war is not predictive for future returns. These country-wise findings are documented in average raw returns and prevail upon risk adjustment along both Carhart (1997) four factors and Fama and French (2018) six factors. A microstructure perspective on the tug of war suggests that the split evidence between the US and Canadian stock markets and the remaining G7 stock markets is due to institutional and regulatory differences which restrict daytime institutional arbitrage in the European stock markets and Japan.

Suggested Citation

  • Hajiyev, Aghamehman & Keiber, Karl Ludwig & Luczak, Adalbert, 2024. "Tug of war with noise traders? Evidence from the G7 stock markets," The Quarterly Review of Economics and Finance, Elsevier, vol. 95(C), pages 234-243.
    • Handle: RePEc:eee:quaeco:v:95:y:2024:i:c:p:234-243
    DOI: 10.1016/j.qref.2024.03.011
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    More about this item

    Keywords

    Overnight returns; Daytime reversals; Noise traders; Institutional arbitrage; International stock markets;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G40 - Financial Economics - - Behavioral Finance - - - General

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