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Uninformed Traders in European Stock Markets

By Salvatore Modica

Abstract

A fully informed agent bets with an uninformed over the capital gains of an asset. A divide-and-choose idea is adapted to induce both trade and revelation of information, but in equlibrium the uninformed buys high and sells low if he is downside risk averse. The result may be seen as an informed-price-maker counterpart of some findings of Glosten-Milgrom (1985) and Kyle (1985) on uninformed agents trading in financial markets.

DOI identifier: 10.3280/ste2010-100009
OAI identifier: oai:RePEc:fan:steste:v:html10.3280/ste2010-100009
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