Can Inefficient Traders Create Value?

Posted: 28 Feb 2004

See all articles by C. N. V. Krishnan

C. N. V. Krishnan

Case Western Reserve University - Department of Banking & Finance

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.

Keywords: informed traders, noise traders

JEL Classification: G12, G14, G24

Suggested Citation

Krishnan, C. N. V., Can Inefficient Traders Create Value?. Journal of Financial Research, Forthcoming. Available at SSRN: https://ssrn.com/abstract=508684

C. N. V. Krishnan (Contact Author)

Case Western Reserve University - Department of Banking & Finance ( email )

10900 Euclid Ave.
PBL 363
Cleveland, OH 44106-7235
United States
216-368-2116 (Phone)

HOME PAGE: http://weatherhead.case.edu/faculty/c-n-v-krishnan

Register to save articles to
your library

Register

Paper statistics

Abstract Views
448
PlumX Metrics