EconPapers    
Economics at your fingertips  
 

ENDOGENOUS NOISE TRADERS

Marcus Salomonsson ()
Additional contact information
Marcus Salomonsson: Dept. of Economic Statistics, Stockholm School of Economics, Postal: Stockholm School of Economics, P.O. Box 6501, SE-113 83 Stockholm, Sweden

No 644, SSE/EFI Working Paper Series in Economics and Finance from Stockholm School of Economics

Abstract: We construct a parsimonious model of a financial market where the marginal investor is an endogenous noise trader. Such a trader anticipates that future shocks may force him to exit his position. In compensation he requires a higher return. We show that the original seller of the asset pays the required return. This can only be optimal if the seller has access to an investment opportunity that gives a sufficiently high return, compared to the noise trader's investment opportunities. We also show that, if the noise trader expects to get informative signals, the required return does not necessarily decrease, as claimed in the earlier literature.

Keywords: Market microstructure; no-trade theorems; adverse selection (search for similar items in EconPapers)
JEL-codes: G14 (search for similar items in EconPapers)
Pages: 14 pages
Date: 2006-12-05
New Economics Papers: this item is included in nep-mst
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed

Downloads: (external link)
http://swopec.hhs.se/hastef/papers/hastef0644.pdf (application/pdf)

Related works:
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:hhs:hastef:0644

Access Statistics for this paper

More papers in SSE/EFI Working Paper Series in Economics and Finance from Stockholm School of Economics The Economic Research Institute, Stockholm School of Economics, P.O. Box 6501, 113 83 Stockholm, Sweden. Contact information at EDIRC.
Bibliographic data for series maintained by Helena Lundin ().

 
Page updated 2024-02-28
Handle: RePEc:hhs:hastef:0644