Uninformed Traders in European Stock Markets
Journal Title: STUDI ECONOMICI
Author/s: Salvatore Modica
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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.
Keywords: Information transmission, Divide and choose, Downside risk aversionJEL Code: D82, G14