easy · Market Microstructure
In the Glosten-Milgrom model, if a dealer sets the bid price as P_bid = E[V | Sell], what is their expected profit on a trade where the seller is uninformed?
- Positive (they buy for less than the average value).
- Negative (the dealer always loses money on the bid side).
- Equal to the full bid-ask spread.
- Zero (the trade is perfectly fair).
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