Working Paper: NBER ID: w12256
Authors: James Dow; Gary Gorton
Abstract: Noise traders are agents whose theoretical existence has been hypothesized as a way of solving certain fundamental problems in Financial Economics. We briefly review the literature on noise traders. The is an entry for The New Palgrave: A Dictionary of Economics, 2nd Edition (Palgrave Macmillan: New York), edited by Steven N. Durlauf and Lawrence E. Blume, forthcoming in 2008.
Keywords: Noise Traders; Market Efficiency; Behavioral Finance
JEL Codes: G1; G12; G14
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Noise traders exist (G40) | Informed traders can profit from their information (G14) |
| Noise traders create a subsidy (H23) | Informed traders can profit from their information production (D83) |
| No noise traders (G40) | Informed traders cannot cover costs of information production (D83) |
| Limits to arbitrage (G19) | Noise traders can survive in the market (G19) |
| Behavioral biases and agency problems (G41) | Noise trading (C58) |