Financial Markets Where Traders Neglect the Informational Content of Prices

Erik Eyster, Matthew Rabin and Dimitri Vayanos

Journal of Finance, 2019, vol. 74, issue 1, 371-399

Abstract: We model a financial market where some traders of a risky asset do not fully appreciate what prices convey about others' private information. Markets comprising solely such “cursed” traders generate more trade than those comprising solely rationals. Because rationals arbitrage away distortions caused by cursed traders, mixed markets can generate even more trade. Per‐trader volume in cursed markets increases with market size; volume may instead disappear when traders infer others' information from prices, even when they dismiss it as noisier than their own. Making private information public raises rational and “dismissive” volume, but reduces cursed volume given moderate noninformational trading motives.

Date: 2019
References: Add references at CitEc
Citations: View citations in EconPapers (39)

Downloads: (external link)
https://doi.org/10.1111/jofi.12729

Related works:
Working Paper: Financial markets where traders neglect the informational content of prices (2019)
Working Paper: Financial markets where traders neglect the informational content of prices (2017)
Working Paper: Financial Markets where Traders Neglect the Informational Content of Prices (2015)
Working Paper: Financial Markets where Traders Neglect the Informational Content of Prices (2015)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:jfinan:v:74:y:2019:i:1:p:371-399

Ordering information: This journal article can be ordered from
http://www.afajof.org/membership/join.asp

Access Statistics for this article

More articles in Journal of Finance from American Finance Association Contact information at EDIRC.
Bibliographic data for series maintained by Wiley Content Delivery ().