Liquidity Provision and Noise Trading: Evidence from the “Investment Dartboard” Column


  • Jason Greene,

    1. Georgia State University
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  • Scott Smart

    1. Indiana University
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    • Georgia State University and Indiana University, respectively. The authors wish to express their thanks for valuable comments from Craig Holden, David P. Brown, Jocelyn Evans, Dan Weaver, the editor, two anonymous referees, and seminar participants at The Milken Institute, 1995 meetings of the Financial Management Association in New York, Baruch College, Indiana University, and the University of Wyoming.


How does increased noise trading affect market liquidity and trading costs? We use The Wall Street Journal's “Investment Dartboard” column, which stimulates noise trading, as a natural experiment to evaluate models of the bid-ask spread. We find that substantial increases in trading volume and significant but temporary abnormal returns occur when analysts recommend stocks in this column, especially when recommendations come from analysts with successful contest track records. We also find an increase in liquidity and a decrease in the adverse selection component of the bid-ask spread.