411. No Trade, Informed Trading, and Accuracy of Information

Jayanaka Wijeratne, Shino Takayama, School of Economics Discussion Paper No. 411, August 2010, School of Economics, The University of Queensland. Australia.

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Abstract

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.