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Unskilled traders, overconfidence and information acquisition

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  • Grégoire, Philippe

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.

Suggested Citation

  • Grégoire, Philippe, 2016. "Unskilled traders, overconfidence and information acquisition," Journal of Behavioral and Experimental Finance, Elsevier, vol. 9(C), pages 1-5.
    • Handle: RePEc:eee:beexfi:v:9:y:2016:i:c:p:1-5
    DOI: 10.1016/j.jbef.2015.08.002
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    Keywords

    Overconfidence; Information acquisition; Market efficiency;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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