Discern signal from noise

What makes stock markets go up? A simple answer would be that there are more buyers than sellers.

A more textbook response is that “efficient” markets rise when the perceived net present value of future cash flows of index constituents increases. By considering the shifting balance between the longer-term trades that work on this basis and actually move markets – the so-called “signal” – and reactive trades around this volume – the “noise” – we can gain insight into how markets such as the Middle East evolve.

With institutions owning the majority of shares in developed markets, one would imagine that most of the volume would be signal – nice long-term flows based on fundamental analysis of how the world’s largest companies are handling today’s conditions.