No Trade, Informed Trading, and Accuracy of Information

Shino Takayama () and Jayanaka Wijeratne ()
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Jayanaka Wijeratne: University of Queensland Alumnus

Economics Bulletin, 2011, vol. 31, issue 2, 1313-1321

Abstract: We present a model in which there is uncertainty about realization of a risky asset value for an informed trader. We introduce two states such that in the "narrow" state the informed trader has better information than in the "wide" state. Then, we show that the informed trader in the wide state does not trade in equilibrium if the information that the informed trader with better information has is sufficiently accurate and the probability of the narrow state is sufficiently high. We use the framework presented by Glosten and Milgrom (1985) and extend the assumption that the informed trader knows the terminal value of the risky asset. Finally, we obtain the conditions under which the informed trader would not trade in equilibrium.

Keywords: Market microstructure; Glosten-Milgrom; Price formation; Asymmetric information; Bid-ask spreads. (search for similar items in EconPapers)
JEL-codes: D4 G0 (search for similar items in EconPapers)
Date: 2011-05-12
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Related works:
Working Paper: No Trade, Informed Trading, and Accuracy of Information (2010)
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