CAN INEFFICIENT TRADERS CREATE VALUE?

C. N. V. Krishnan

Journal of Financial Research, 2004, vol. 27, issue 4, 461-479

Abstract: 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.

Date: 2004
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https://doi.org/10.1111/j.1475-6803.2004.00103.x

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