Unskilled traders, overconfidence and information acquisition

Philippe Grégoire

Journal of Behavioral and Experimental Finance, 2016, vol. 9, issue C, 1-5

Abstract: The value of an asset has two components, referred to as obvious and obscure. Unskilled traders are only aware of the obvious component and thus overestimate the precision of the information they may acquire. Unskilled traders are overconfident when informed and the intensity at which they trade makes researching the obscure component profitable to skilled traders, and this even when research costs are such that no information acquisition takes place in a skilled-only market. Hence overconfidence in our model encourages research by all, including the skilled (rational) traders.

Keywords: Overconfidence; Information acquisition; Market efficiency (search for similar items in EconPapers)
JEL-codes: D82 G12 G14 (search for similar items in EconPapers)
Date: 2016
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Persistent link: https://EconPapers.repec.org/RePEc:eee:beexfi:v:9:y:2016:i:c:p:1-5

DOI: 10.1016/j.jbef.2015.08.002

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