Noise Trading in Stamm- und Vorzugsaktien

The importance of noise trading is analysed for returns of a group of common and preferred stocks within the DAX. Returns of long-short portfolios comprising dual-class shares with one class listed in the index display excess co-movement with the market. Assuming that dual-class shares are fundamentally identical in the absence of a market for corporate control, it is possible to explain 80% of weekly return variation between the two share classes. The conditional volatility of such long-short portfolio returns ranges from 0,6% to 5,8% per week. Noise trader risk rather than market friction seems to account for these results.