No trade, informed trading, and accuracy of information

Takayama, Shino and Wijeratne, Jayanaka (2011) No trade, informed trading, and accuracy of information. Economics Bulletin, 31 2: 1313-1321.

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Author Takayama, Shino
Wijeratne, Jayanaka
Title No trade, informed trading, and accuracy of information
Journal name Economics Bulletin   Check publisher's open access policy
ISSN 1545-2921
Publication date 2011-05-12
Sub-type Article (original research)
Open Access Status File (Publisher version)
Volume 31
Issue 2
Start page 1313
End page 1321
Total pages 9
Place of publication Nashville, TN, United States
Publisher Economics Bulletin
Collection year 2012
Language eng
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.
Keyword Market microstructure
Price formation
Asymmetric information
Bid-ask spreads
Q-Index Code C1
Q-Index Status Confirmed Code
Institutional Status UQ
Additional Notes Author-supplied publisher's version attached - The Economics Bulletin is a Direct Open Access Journal.

Document type: Journal Article
Sub-type: Article (original research)
Collections: Official 2012 Collection
School of Economics Publications
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Created: Thu, 13 Oct 2011, 14:59:18 EST by Shino Takayama on behalf of School of Economics