medium · Market Microstructure
Suppose a dealer sets a 0.20 spread on a stock. If the dealer expects that 30% of orders are from informed traders (α = 0.30) and the informed traders have an average advantage of $0.50 (μ = 0.50), what is the adverse selection component of the half-spread according to the Glosten-Milgrom framework?
- $0.15
- $0.30
- $0.10
- $0.06
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