Noisy market hypothesis

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

Financial markets
Types of markets	Primary market Secondary market Third market Fourth market
Types of stocks	Common stock Golden share Preferred stock Restricted stock Tracking stock
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 Financial law Regulator Stock trader
Exchanges	Electronic communication network List of stock exchanges Trading hours 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 averaging Value investing
Related terms	Block trade Cross listing Dark pool Dividend Dual-listed company DuPont analysis Efficient frontier Flight-to-quality Government bond Haircut Initial public offering Long Margin Market anomaly Market capitalization Market depth Market manipulation Market trend Mean reversion Momentum Open outcry Position Public float Public offering Rally Returns-based style analysis Reverse stock split Share repurchase Short selling Slippage Speculation Stock dilution Stock exchange Stock market index Stock split Trade Uptick rule Volatility Voting interest Yield

Noisy market hypothesis

References

See also