| The economic globalization has boost the globalization in financial market for individual countries, resulting in stronger inter-connection between the real economy and financial market. The movements in financial market have a profound effect on real economy, from the recession in Holland in16th century, British South Seas Crisis,1929crush in stock market in United States, to2008Global Financial Crises (GFC) caused by US subprime lending crisis. Up till now, the world has not completely recovered from GFC. Countries around the world are still dealing with high unemployment rate, low economic growth, inflation, even some facing serious debt risks. Bubbles in financial market have significantly interrupt the operation of real economy, as well as the steady development of financial market. Therefore, it is vital to keep the stability and reduce bubbles in financial markets, maintain a good control over investors.Traditional financial theory, based on "efficient market" assumption, has received more and more questions and suspects as recent decades have experienced serious bubbles in financial markets and other unexplained scenarios. It is hard for traditional financial theory to find out a clear answer to those scenarios. Under such complicated social environment, information transition would meet numbers of noises; meanwhile, influenced by various factors, it is hard for most investors to maintain as a "rational person" all the time. By successfully combining psychology and finance, behavioral theory has developed quickly with great supports from many professor and academia. Noise trading, a popular topic in financial theory, has been a focus for many professors. It is highly beneficial to China’s financial market to reduce noisy trading in stock market, alleviate risks in noise trading, maintain a stable stock market by investigating whether there are noise trading in stock market, how long can noise trading present in financial market and the influence of noise trading.To discuss about noise trading, this article firstly presents behavioral theory to explain some scenarios which cannot be explained by traditional financial theory in current financial market, as well as the causes for noise trading. Then the article would display DSSW model to confirm that noise trading would stay in stock market in a long term. Thirdly, the article would fully analysis the condition and risks of noise trading in China’s stock market before we reach to a final conclusion. The contents for each chapters are as follows:Chapter1:Introduction. Summarize research background and the value of this topic, followed by the structure, main tasks and shortcomings.Chapter2:Executive summary. Through reviewing the researches over related articles based on the writing purposes, I classify those articles into three sections. Those researches fully explains the current situation and achievements of noise trading, a strong foundation for this dissertation.Chapter3:Analysis over causes and mechanism of noise trading. This dissertation reached to behavioral theory through discussing the weakness of traditional finance theory. Then provide detailed theoretic analysis over the cause of noise trading based on behavioral theory. Further, DSSW model confirmed that noise trader can find their ways to survive when trading with rational traders to stay in market in the long run. This chapter is the theory base for the whole dissertation.Chapter4:Descriptive analysis over noise trading in China’s stock market. This dissertation mainly discusses stock markets in Shanghai and Shenzhen, comparing their turnover ratio, profitability and noise ratio with international financial market, to check the noise trading condition in our stock market.Chapter5:Practical researches over the existence of noise trading in China’s stock market. According to random model, this article exams the profitability of Shanghai&Shenzhen’s financial market would follow theoretical distribution, to confirm our analysis over noise trading in China’s stock market.Chapter6:Practical analysis over noise trading risks in China’s stock market. Through BAPM and CAPM model, we achieve the noise trading value for individual stock, analyzing the condition from micro-perspective. Meanwhile, we can conclude that BAPM model is more accurate than CAPM model in calculating negative risk premium.Chapter7:Conclusion and recommendation. Making conclusion and corresponding recommendations according the previous theoretical and practical analysis.To summarize the conclusion for this dissertation:noise trading can exist in stock market in the long run; China’s stock market have substantial noise trading compared with international financial market; noise trading in financial booming is much more than in financial downturn; the individual stock in China has noise trading at different levels, which should not be ignored. |
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