Mark Fenton-O'Creevy, Nigel Nicholson, Emma Soane, and Paul Willman
- Published in print:
- 2004
- Published Online:
- October 2011
- ISBN:
- 9780199269488
- eISBN:
- 9780191699405
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/acprof:oso/9780199269488.003.0001
- Subject:
- Business and Management, Finance, Accounting, and Banking, Organization Studies
Professional traders utilize market imperfections through lower transaction costs, access to privileged information, critical mass, or proprietary knowledge and models. To be able to understand the ...
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Professional traders utilize market imperfections through lower transaction costs, access to privileged information, critical mass, or proprietary knowledge and models. To be able to understand the role and work of the trader, we must first understand the neoclassical paradigm of efficient markets and rational pricing and how this no longer becomes valid at margins and how professional traders benefit and contribute to this event. Also, this paradigm relies on the assumption that a group of rational investors deter pricing anomalies through arbitrage when there are no uniformly rational investors. The study relies on interviews conducted with 118 traders and trade managers in four large investment banks in the City of London to meet the following concerns: decision-making and risk management, the role of finance professionals in these markets, and a synthesis of economics, sociology, and cognitive and social psychology in analysing the various approaches and paradigms of traders.Less
Professional traders utilize market imperfections through lower transaction costs, access to privileged information, critical mass, or proprietary knowledge and models. To be able to understand the role and work of the trader, we must first understand the neoclassical paradigm of efficient markets and rational pricing and how this no longer becomes valid at margins and how professional traders benefit and contribute to this event. Also, this paradigm relies on the assumption that a group of rational investors deter pricing anomalies through arbitrage when there are no uniformly rational investors. The study relies on interviews conducted with 118 traders and trade managers in four large investment banks in the City of London to meet the following concerns: decision-making and risk management, the role of finance professionals in these markets, and a synthesis of economics, sociology, and cognitive and social psychology in analysing the various approaches and paradigms of traders.
