A Comparative Study Of Noise Trading On China’s And America’s Security Markets

The information in the stock- market is cost-less in Standard Finance Theory.Meanwhile, In this Standard Finance Theory, a basic assumption is presented: “perfect rationality” of the investors in the stock markets, which means the rational investors have the ability of predicting the stock intrinsic value based on the full of the information of the markets. But this hypothesis has been considered an excessive ideal. On the one hand, the abnormal phenomenon in real finance markets could not be explained reasonably with the Standard Finance Theory, on the other hand, the theory has no help to put forward effective advises on the reform of the finance market.With the more and more finance academics started to study new finance theory, the development of information economics and the psychology has be introduced into the study of finance have improved the rise of a new finance theory: behavioral finance. Behavioral finance offers a new reverse hypothesis of “limited rationality”. And it considers there are two kinds of investors: rational investors and noise traders. In behavioral finance, the information in stock markets has a certain cost and there is massive phenomenon of information asymmetry. “Noise” which is contrary to “Information” arouses enough attention from more and more researchers, and become the hot spots and focuses on the study of finance theory.In recent years, the phenomenon of share price shooting up and plummet so often. And there are massive non- reasonable factors in stock markets. It precludes the development of stork markets and damages the health of national economy. So with the angel of noise,exploring the reason of our stork markets seems very necessary. Our country is still a developing country and the security markets is regarded a emerging and in-mature market, so with the angel of noise, anglicizing the comparison of Chinese and American security market Gould help us easily and completely understand the noise trading in our country’s stork markets, and also could give advice to the reform of security markets.On the foundation of noise trading, this paper analysis the capability of noise trader gaining the profit in the stork markets and its long-term survival. With three indexes: market profit rate, turnover rate and noise coefficient, the paper contrastively analysis the level of noise in China’s and America’s security markets.Information asymmetry and limited rationality of investors are regarded the main common reasons of noise trading in both China’s and America’s security markets, furthermore,inaccurate orientation of markets function, the defect of trading and issuance system, and excessive interference of government are the unique reason of noise in China’s stock markets.In the end of this paper, with the econometric model, the relationship between noise and Shanghai Stock Index and NYSE Composite Index is concluded that noise is contributed to stock fluctuation in China, but it is not the reason of America’s stock fluctuation. Due to that conciliation, several advice are put forward:(1) establish and perfect information disclosure system to reduce the cost of information;(2) enhance the function of markets self and weaken the function of government;(3) transfer the “individual markets” to “institutional markets”and improve the comprehensive quality of individual investors;(4) introduce short sales mechanism.