Is Sound Just Noise?


  • Joshua D. Coval,

  • Tyler Shumway

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    • Both authors are from the University of Michigan Business School, Ann Arbor, Michigan. We thank Fred Grede, Craig Fujibayashi, Corey Cheng, Maureen Mellody, Timothy Bay, Scott Fox, Steven Cho, and the Chicago Board of Trade for their help in collecting the data. We also thank Sugato Bhattacharya, Bhagwan Chowdhry, Steve Figlewski, John Leichty, Ananth Madhavan, Anthony Neuberger, an anonymous referee, and seminar participants at Carnegie Mellon University, University of Michigan, Pennsylvania State University, University of Texas at Austin, the 1999 CBOT Spring Futures Research Conference, the 1999 Western Finance Association meetings in Santa Monica, the 2000 Winter Finance Conference at Utah, and the 2000 European Finance Association meetings in London for helpful comments and discussions.


We analyze the information content of the ambient noise level in the Chicago Board of Trade's 30-year Treasury Bond futures trading pit. Controlling for a variety of other variables, including lagged price changes, trading volumes, and news announcements, we find that the sound level conveys information which is highly economically and statistically significant. Specifically, changes in the sound level forecast changes in the cost of transacting. Following a rise in the sound level, prices become more volatile, depth declines, and information asymmetry increases. Our results offer important implications for the future of open outcry and floor-based trading mechanisms.