Honors College Theses

Publication Date

11-30-2020

Major

Finance (BBA)

Document Type and Release Option

Thesis (open access)

Faculty Mentor

Dr. Axel Grossmann

Abstract

The literature provides ample evidence that the last decades have seen an increase in noise trader activities, in part driven by the development of fintech. This paper strives to educate readers on the term noise traders as well as fintech. Moreover, it argues that the evolvement of noise trader activities accompanied with fintech has increased equity market volatility over time. The study finds that equity market volatility has indeed increased over time and is not driven by periods of crisis. Furthermore, this increase in volatility is more severe for small stocks versus large stocks, which is in line with the stated hypothesis that low volume stocks (small stocks) are more impacted by noise trades. Additionally, the study finds higher volatility for daily returns versus volatility based on weekly or monthly returns, which supports the notion that noise traders move more quickly in and out of equity markets. Finally, sectors which are potentially more impacted by noise trader activities, due to their growth and media coverage, also demonstrate higher volatility.

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