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No Trade, Informed Trading, and Accuracy of Information

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We present a model in which there is uncertainty about realization of a risky asset value for an informed trader. Then, we show that the informed trader does not trade in equi- librium if the inside information the informed trader has is not sufficiently accurate. 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.

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File URL: http://www.uq.edu.au/economics/abstract/411.pdf
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Paper provided by School of Economics, University of Queensland, Australia in its series Discussion Papers Series with number 411.

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Date of creation: 2010
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Handle: RePEc:qld:uq2004:411

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  1. Jones, Charles M & Kaul, Gautam & Lipson, Marc L, 1994. "Transactions, Volume, and Volatility," Review of Financial Studies, Society for Financial Studies, Society for Financial Studies, vol. 7(4), pages 631-51.
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