Can someone post their thoughts on question 2. I cannot see where it has been discussed anywhere within the previous readings. If you do find it pls direct me to the pg Thanks!
Q2 relates to the last years’ reading and is not relevant for this year. Do not worry about it too much.
Here’re my 2 cents: Noise trader risk is the risk faced by rational traders/ arbitrageurs that irrational noise traders will cause asset prices to move unpredictably. The presence of noise traders will deter rational arbitrageurs from equalizing asset prices with fundamental values. In other words, due to noise traders, the mispricing may get worse and the rational arbitrageur may be forced to liquidate at a loss. Therefore, noise trader risk is bad to arbitrageurs…