Bid, Ask and Transaction Prices in a Specialist Market with Heterogeneously Informed Traders

Glosten, L. R., & Milgrom, P. R. (1985). Bid, Ask and Transaction Prices in a Specialist Market with Heterogeneously Informed Traders. Journal of Financial Economics, 14(1), 71-100.

Type

Journal article

Intellectual base

Primary research

Year

1985

Volume

14

Issue

1

Pages

71-100

ISSN

0304-405X

DOI

10.1016/0304-405x(85)90044-3

DOI registrant

Elsevier

Link

https://doi.org/10.1016/0304-405X(85)90044-3

Cited from

economics_finance

Cited by

2 citations across 2 artifacts.

Each citation links to the sentence it supports in the citing article.

Primes

• Liquidity
  • This mirrors a structural finding from market microstructure: Glosten and Milgrom (1985) showed that bid-ask spreads emerge as compensation for the information asymmetry between informed and uninformed traders, so that the liquidity of any market—or any knowledge system—is governed by the cost of resolving who knows what, not by raw volume of holdings.

    This sourceSequential-trade model in which bid-ask spreads emerge as compensation for information asymmetry between informed and uninformed traders; establishes the canonical link between information environment and liquidity.

Mechanisms

• Market-Microstructure Order-Book Probe
  • Informed order flow leaving a footprint in spreads

    This sourceShows that informed trading leaves an observable footprint by generating a positive bid–ask spread.

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