Strategic Trading of Uninformed Traders and Properties of Equilibrium
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Abstract
This paper establishes a gamble model among market maker, informed and uninformed traders using rational expectation idea. It studies the optimal information production cost and market liquidity at the equilibrium and analyzes the affection of endogenous information decision to the information content of price. The paper also manifests that more informed traders can even decrease information content of price under certain circumstances. This implies that it needs comprehensive consideration of every factor in improving the market quality.
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