Informed Traders

Informed Traders

Speculators who acquire and act on information about fundamental values
1. They don't make easy profits...
  1. Their trading influences others to trade which may reduce prices (and profits)
  2. Sellers require higher prices from informed traders (so profits decrease)
  3. Trades carry information about prices to others
Fundamental values
1. The general equilibrium price given by all info = fundamental value of an asset and noise
Strategies
1. Minimise price impact to maximise profit
2. Aggressive trading
3. Stealth (slow) trading
Styles of informed trading
1. Value traders
  1. Pyramid shaped organisations w/ variety of experts
  2. Economic models for estimation
  3. Large databases of info
  4. Ultimate liquidity suppliers
2. News traders
  1. Flat organisational structure
  2. Quick trades before prices adjust
  3. Electronic news services
3. Information-oriented technical traders
  1. Identify recurring price patterns
  2. Econometric techniques for estimation
  3. Not profitable in efficient markets
  4. "Scavengers"
4. Arbitrageurs
  1. Enforce the law of one price when transaction costs permit
  2. Simultaneously buy and sell similar instruments
Announcements
1. Earnings Reports
  1. Earnings per share
  2. Sales growth
  3. Future outlook**
    1. Most important indicator
    2. Affects prices the most
2. ASX
  1. Takeovers/Mergers
  2. Shareholder details
  3. Company reports
  4. Notice of meetings
  5. Dividends
  6. Sensitive? Trading halt

Resource summary

	Created by Vhia Rose over 10 years ago