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Liquidity Provision and Noise Trading: Evidence from the “Investment Dartboard” Column
Author(s) -
Greene Jason,
Smart Scott
Publication year - 1999
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/0022-1082.00171
Subject(s) - market liquidity , contest , business , investment (military) , adverse selection , monetary economics , bid price , market maker , column (typography) , noise (video) , financial economics , economics , finance , telecommunications , computer science , politics , political science , law , paleontology , horse , frame (networking) , artificial intelligence , stock market , image (mathematics) , biology
How does increased noise trading affect market liquidity and trading costs? We use The Wall Street Journal 's “Investment Dartboard” column, which stimulates noise trading, as a natural experiment to evaluate models of the bid‐ask spread. We find that substantial increases in trading volume and significant but temporary abnormal returns occur when analysts recommend stocks in this column, especially when recommendations come from analysts with successful contest track records. We also find an increase in liquidity and a decrease in the adverse selection component of the bid‐ask spread.