Abstract:
What drives intraday traders’ sentiments in the stock markets: information or noise? This
paper argues that the market microstructure noise (MMN) manifests intraday traders’
aggregate sentiments depicted by chaotic and noisy market returns. It examines if intraday
stock market returns, returns’ variances and higher order moments are erratic, noisy and nonnormal. It shows that the intraday Bombay Stock Exchange (BSE) Sensex and National Stock
Exchange (NSE) Nifty index returns approximate to zero-mean, zero-variance but skewed and
leptokurtic in distributions. In exploring the intraday market index returns, standardisation
process reveals noises in the BSE market, but it is evened up in the NSE market. Since intraday
traders’ market sentiments and decision choices are behavioural, noisy but adaptive, their
decision choices need strategies given that those strategies have numerical “attractions” that
determine choice probabilities. We explore the adaptive Experience Weighted Attraction
(EWA) learning parameters to show persistent MMN in intraday traders’ adaptive learning
behaviours
