Noise trader risk and its effect on market volatility: Evidence from Vietnam’s stock market

Authors: Thanh Dat Pham ¹, Dan Khanh Pham ^2, *

Affiliations:

¹School of Banking and Finance, National Economics University, Hanoi, Vietnam
²School of Advanced Education Program, National Economics University, Hanoi, Vietnam

Abstract

This study examines the presence of noise trader risk in Vietnam’s stock market and its impact on daily stock returns. The research employs GARCH (1,1), EGARCH, and PGARCH models to filter residuals, followed by a moving average approach to measure the effect of informed traders. Noise trader risk, defined as the risk arising from irrational traders, is calculated by subtracting the influence of rational traders from the residuals. The results show that noise trader risk exists in Vietnam’s stock market, but its effect on daily returns is unpredictable. In contrast, informed traders have a positive impact on stock returns, helping to correct market prices toward their fundamental values.

Keywords

Noise trader risk, Stock market returns, GARCH models, Market efficiency, Investor behavior

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DOI

https://doi.org/10.21833/ijaas.2025.04.021

Citation (APA)

Pham, T. D., & Pham, D. K. (2025). Noise trader risk and its effect on market volatility: Evidence from Vietnam’s stock market. International Journal of Advanced and Applied Sciences, 12(4), 193–199. https://doi.org/10.21833/ijaas.2025.04.021