Recent empirical research shows that stock prices movement
cannot easily be explained by changes in fundamentals; one
explanation is that asset prices respond not only to news but
also to noise trading. This research includes three
parts: modeling misperceptions of returns in asset
pricing model, hypothesis testing through simulation
analysis and empirical analysis. According to simulation
analysis, we found the higher the proportion of noise
traders in the market , the prices diverge more significantly
from fundamental values. In empirical analysis , this
dissertation demonstrates that: 1. The relative
profitability between listed corporations is not the
only information considered by the market participants in TSE(
Taiwan Stock Market). 2. The company''s profitability changes
is not the only information used by the market participants in
TSE. 3. There are misperceptions of returns to some
characteristic by the market participants in TSE. 4. In the
research period(from 1987 to 1992) ,market participants in
TSE show consensus preferrence to stock of different sizes
in some years. 5. In the research period , market
participants in TSE show strong preferrence to the stock of
smallest size stocks. 6.The preferrence to smallest size stock
can last more than one years in TSE. 7. Concentration index
of stockholders is not the critical variable that
participants of TSE focus. 8.Daily trading volume changes is
not the key factor that changes stock prices. Do rational
investors follow the investment strategy of noise traders?
Why rational investors change their mind? What is the
interaction process between investors? All these
questions deserved to be investigated in future research.