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This study extends the model of Kyle(1985) and Daniel, Hirshleifer and Subrahmanyam(1998)by considering the noise trader. It investigates the impacets of noise trader and overconfident informed trader on market quality. In this study, market quality includes market depth, price volatility, and expected profits of all traders. The result shows that if the informed trader keeps the higher overconfidence and the noise trader receives the noise with the higher deviation from the reality, it is insignificant that the lower market depth or higher expected loss of the uninformed trader, but it increase the market non-equilibrum. The areas are disadvantageous on market depth or expected loss of the uninformed trader, the percentage is 60% under the informed trader with non-overconfidence. The percentage comes down to 53.3% with the moderate overconfidence. Finally, the percentage increases to 60.6% with the critical overconfidence. Therefore, the informed trader with the degree of overconfidence and the noise trader receiving the noise with the degree of deviation from the reality are both important factors on market quality. In order to making the market more efficiently, this study suggests that the government should enhance the information disclosure to reduce asymmetric information and severely punish people who maliciously spread rumors to diminish the noise trading.
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