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Is It all Noise? The Microstructure Implications of Corporate Recurring Advertisements

Published online by Cambridge University Press:  25 April 2025

Vivian W. Fang Open the ORCID record for Vivian W. Fang [Opens in a new window] ,
Joshua Madsen  and
Xinyuan Shao
Vivian W. Fang*
Affiliation:
Indiana University Kelley School of Business and European Corporate Governance Institute
Joshua Madsen
Affiliation:
University of Minnesota Carlson School of Management [email protected]
Xinyuan Shao
Affiliation:
Chinese University of Hong Kong School of Accountancy [email protected]
*
[email protected] (corresponding author)
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Abstract

This paper studies the market microstructure implications of uninformed trading volume. We capture uninformed volume using spikes in retail trading triggered by weekly advertisements (ads) in the Wall Street Journal that are largely duplicates. We report three findings. First, consistent with a positive volume-volatility relation, stock price volatility amplifies on recurring ad days. Second, informed investors time liquidity to trade more aggressively on recurring ad days. Third, despite the increase in informed trading on such days, price impact is lower, yielding a negative volume–price impact relation. Collectively, the evidence supports the theoretical predictions of Collin-Dufresne and Fos (2016).

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , First View , pp. 1 - 31
Copyright
© The Author(s), 2025. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington

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Footnotes

We are grateful for helpful comments and suggestions from Thierry Foucault (the editor), two anonymous referees, Anat Admati, Kai Du, Gustavo Grullon, Nick Guest, Iftekhar Hasan, Craig Holden, Ron Kaniel, Charles Lee, Tim Loughran, Jeff McMullin, Cameron Peng, Andrea Presbitero, Manju Puri, Yi Tang, Venky Venkateswaran, Wenyu Wang, Yihui Wang, Liyan Yang, Haoxiang Zhu, seminar participants at Fordham University and the University of Minnesota, and conference participants at the 2021 Midwest Accounting Conference, 2020 GSU-RFS FinTech Conference, 2020 FARS Midyear Conference, 2019 China International Conference in Finance, 2019 Financial Intermediation Research Society Conference, 2019 USC Conference on Emerging Technologies in Accounting and Financial Economics, and 2018 Brigham Young University Accounting Research Symposium. We thank Slava Fos and Mao Ye for many helpful discussions, Slava Fos for sharing measures of informed trading, and Jason Swan and Yifan Yan for excellent research assistance.

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