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Can Inefficient Traders Create Value?

  • C. N. V. Krishnan
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    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. 2004 The Southern Finance Association and the Southwestern Finance Association.

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    Article provided by Southern Finance Association & Southwestern Finance Association in its journal Journal of Financial Research.

    Volume (Year): 27 (2004)
    Issue (Month): 4 ()
    Pages: 461-479

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    Handle: RePEc:bla:jfnres:v:27:y:2004:i:4:p:461-479
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