Noise Trader Risk and Wealth Effect: A Theoretical Framework
This paper discusses the impact of noise trader risk on total consumption and investor consumption. The model predicts that: (1) If noise traders show optimistic beliefs, they will have a restraining effect on the total consumption when the noise trading intensity is high enough, they will expand co...
| Main Authors: | , , |
|---|---|
| Format: | Article |
| Language: | English |
| Published: |
MDPI AG
2022-10-01
|
| Series: | Mathematics |
| Subjects: | |
| Online Access: | https://www.mdpi.com/2227-7390/10/20/3873 |
| _version_ | 1797406901380579328 |
|---|---|
| author | Cong Chen Changsheng Hu Hongxing Yao |
| author_facet | Cong Chen Changsheng Hu Hongxing Yao |
| author_sort | Cong Chen |
| collection | DOAJ |
| description | This paper discusses the impact of noise trader risk on total consumption and investor consumption. The model predicts that: (1) If noise traders show optimistic beliefs, they will have a restraining effect on the total consumption when the noise trading intensity is high enough, they will expand consumption at <i>t</i> = 1 and reduce consumption at <i>t</i> = 2, and rational investors will reduce consumption at <i>t</i> = 1 and expand consumption at <i>t</i> = 2; (2) if the beliefs of noise traders do not show bias, the consumption of rational investors is always higher than that of noise traders and exceeds the market benchmark; (3) the relative consumption of rational investors and noise traders depends on the risk, risk aversion, fundamental risk and market ratio of noise traders; (4) based on the reasonable range of noise traders’ beliefs, the lifetime consumption of noise traders will be higher than that of rational investors and the market, and the excess consumption will change with a series of parameters. |
| first_indexed | 2024-03-09T03:33:25Z |
| format | Article |
| id | doaj.art-57c6290f92814a98a4ce3918a959f38f |
| institution | Directory Open Access Journal |
| issn | 2227-7390 |
| language | English |
| last_indexed | 2024-03-09T03:33:25Z |
| publishDate | 2022-10-01 |
| publisher | MDPI AG |
| record_format | Article |
| series | Mathematics |
| spelling | doaj.art-57c6290f92814a98a4ce3918a959f38f2023-12-03T14:52:00ZengMDPI AGMathematics2227-73902022-10-011020387310.3390/math10203873Noise Trader Risk and Wealth Effect: A Theoretical FrameworkCong Chen0Changsheng Hu1Hongxing Yao2School of Finance and Economics, Jiangsu University, Zhenjiang 212013, ChinaEconomics and Management School, Wuhan University, Wuhan 430072, ChinaSchool of Finance and Economics, Jiangsu University, Zhenjiang 212013, ChinaThis paper discusses the impact of noise trader risk on total consumption and investor consumption. The model predicts that: (1) If noise traders show optimistic beliefs, they will have a restraining effect on the total consumption when the noise trading intensity is high enough, they will expand consumption at <i>t</i> = 1 and reduce consumption at <i>t</i> = 2, and rational investors will reduce consumption at <i>t</i> = 1 and expand consumption at <i>t</i> = 2; (2) if the beliefs of noise traders do not show bias, the consumption of rational investors is always higher than that of noise traders and exceeds the market benchmark; (3) the relative consumption of rational investors and noise traders depends on the risk, risk aversion, fundamental risk and market ratio of noise traders; (4) based on the reasonable range of noise traders’ beliefs, the lifetime consumption of noise traders will be higher than that of rational investors and the market, and the excess consumption will change with a series of parameters.https://www.mdpi.com/2227-7390/10/20/3873investor sentimentnoise trader riskwelfare levelreal economy |
| spellingShingle | Cong Chen Changsheng Hu Hongxing Yao Noise Trader Risk and Wealth Effect: A Theoretical Framework Mathematics investor sentiment noise trader risk welfare level real economy |
| title | Noise Trader Risk and Wealth Effect: A Theoretical Framework |
| title_full | Noise Trader Risk and Wealth Effect: A Theoretical Framework |
| title_fullStr | Noise Trader Risk and Wealth Effect: A Theoretical Framework |
| title_full_unstemmed | Noise Trader Risk and Wealth Effect: A Theoretical Framework |
| title_short | Noise Trader Risk and Wealth Effect: A Theoretical Framework |
| title_sort | noise trader risk and wealth effect a theoretical framework |
| topic | investor sentiment noise trader risk welfare level real economy |
| url | https://www.mdpi.com/2227-7390/10/20/3873 |
| work_keys_str_mv | AT congchen noisetraderriskandwealtheffectatheoreticalframework AT changshenghu noisetraderriskandwealtheffectatheoreticalframework AT hongxingyao noisetraderriskandwealtheffectatheoreticalframework |