EconomicsPrice discovery" is the process by which marketprices move towards fundamental prices. For pricediscovery to occur without actual trading, which ofthe following statements must be true?а.Limit order traders (i.e. liquidity providers) areequivalently informèd traders (i.e. there is noinformation asymmetry distinction betweenliquidity providers and informed traders)b.The adverse selection component of the bid-askspread is zeroС.The transaction cost component of the bid-askspread is zerod.(a) & (b)е.(a) & (c)

We are going to answer this question using a support from Efficient market hypothesis.

Economics Price discovery" is the process by which market prices move towards fundamental prices. For price discovery to occur without actual trading, which of the following statements must be true? а. Limit order traders (i.e. liquidity providers) are equivalently informed traders (i.e. there is no information asymmetry distinction between liquidity providers and informed traders) b. The adverse selection component of the bid-ask spread is zero С. The transaction cost component of the bid-ask spread is zero d. (а) & (b) е. (a) & (c)

Economics Price discovery" is the process by which market prices move towards fundamental prices. For price discovery to occur without actual trading, which of the following statements must be true? а. Limit order traders (i.e. liquidity providers) are equivalently informed traders (i.e. there is no information asymmetry distinction between liquidity providers and informed traders) b. The adverse selection component of the bid-ask spread is zero С. The transaction cost component of the bid-ask spread is zero d. (а) & (b) е. (a) & (c)

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter17: Capital And Time

Section: Chapter Questions

Problem 17.10P: Wonopoly and natural resource prices Suppose that a firm is the sole owner of a stock of a natural...

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