easy · Market Microstructure
A dealer estimates that 20% of incoming orders are from informed traders (α = 0.20) and that these traders have an average informational advantage of μ = $0.50.
According to the Glosten-Milgrom framework, what is the adverse selection component of the half-spread?
- $0.20
- $0.50
- $0.05
- $0.10
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