The Value of Information: A Puzzle
Why stock traders earn far less from secrets than they pay to find them
Researchers measured how much money informed traders actually make from their information advantage in US stock markets and found it's about $3.5 million per stock annually—surprisingly small. The real puzzle: investors collectively spend roughly 17 times more in fees chasing superior returns than the actual gains those advantages deliver.
This finding suggests that most of the money flowing into active fund management, algorithmic trading, and research-driven strategies may be wasted effort. If the genuine payoff from having better information is genuinely this thin, it raises hard questions about whether the enormous resources devoted to beating the market could be better spent elsewhere—and whether individual investors chasing high-fee funds are effectively paying for a mirage.