| No-trade Theorem |
Website Links For Theorem |
Information AboutNo-trade Theorem |
| CATEGORIES ABOUT NO-TRADE THEOREM | |
| economics theorems | |
|
It states that if markets are in a state of Efficient Equilibrium , if there are no Noise Trader s or other nonrational interferences with prices, and if the structure by which traders or potential traders acquire information is itself common knowledge, then even though some traders may possess private information, none of them will be in a position to profit from it. The assumptions are deliberately unrealistic, but the theorem may nonetheless be pertinent to debates over Inside Information . Informally put, the idea behind the proof of the no-trade theorem is that if there is common knowledge about the structure of a market, then any bid or offer (i.e. attempt to initiate a trade) will reveal the bidder's private knowledge and will be incorporated into market prices even before anyone accepts the bid or offer, so no profit will result. |
|
|