When large traders create noise

We consider a market where large investors do not only trade on information about asset fundamentals. When they trade more aggressively, the price becomes less informative. Other investors who learn from prices, in turn, are less concerned about adverse selection and provide more liquidity, causing large investors to trade even more aggressively. This trading complementarity can engender three unconventional results: i) increased competition among large investors makes all investors worse off, ii) more precise private information reduces price informativeness, creating complementarities in information acquisition, and iii) multiple equilibria emerge. Our results have implications for competition and transparency policies in financial markets.