CAN INEFFICIENT TRADERS CREATE VALUE? | Zendy

Krishnan C. N. V. | Zendy

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CAN INEFFICIENT TRADERS CREATE VALUE?

Author(s) -

Krishnan C. N. V.

Publication year - 2004

Publication title -

journal of financial research

Language(s) - English

Resource type - Journals

SCImago Journal Rank - 0.319

H-Index - 49

eISSN - 1475-6803

pISSN - 0270-2592

DOI - 10.1111/j.1475-6803.2004.00103.x

Subject(s) - profit (economics) , microeconomics , asset (computer security) , order (exchange) , value (mathematics) , aggregate (composite) , business , economics , industrial organization , financial economics , finance , computer science , materials science , computer security , machine learning , composite material

I examine the aggregate expected profit generated by informed traders of diverse ability in a competitive market. I assume that efficient traders get perfect information on asset values whereas inefficient traders get noisy information. In the presence of order size restrictions, I show that the aggregate expected profit generated by efficient and inefficient traders together can be higher than that generated by efficient traders alone. Thus, inefficient traders can create value in a constrained trading environment.

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