Tuesday, April 28, 2009

prices as information sources(2)

On the other hand, any firm trying to buy or sell a large number of shares that it considers mispriced should try to conceal either its motives, its identity, or both (and many do try). Such attempts may be ineffective, however, as those asked to take the other side of such traders try to find out exactly what is going on (and many succeed).
Since offers may effect other offers other offers, the way in which a market functions can effect the prices at which trades are made.And different markets function in different ways. for example, the new york stock exchange specialist is books contain information on both the prices and the quantities specified in standing orders, but only the lowest ask price and the highest bid price in the book and quantities associated with each are revealed by the specialist to the general market. In the over-the-counter market, dealers publicly announce bid and ask prices that are firm for small quantities, but they negotiate prices for larger quantities. Orders for some stocks on the Paris Bourse are placed in a book with both prices and quantities specified, while for other stocks the book contains only the prices of orders.
The extent to which standing orders are made public may thus affect the prices at which such orders are executed, the extent to which investors will place them with brokers, and the extent to which brokers will place them in central"book" where they can be seen by others.
Some investors depend almost entirely on price for information about value. This raises the possibility that a clever trader could make money by placing orders to trigger foolish responses from such investors. While this may occur in isolated instances, it is limited by the presence of informed traders who use external information sources to assess value. Given a large enough number of people who study fundamental aspects, it is possible for most investors to assume that market price refracts value .

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