Estimation of the Bid–Ask Spread and Its Components: A New Approach

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Abstract
It is generally agreed that speculators can make profits from insider trading or from the release of false information. Both forms of stock-price manipulation have now been made illegal In this article, we ask whether it impossible to make profits from a different kind of manipulation, in which an uninformed speculator simply buys and sells shares. We show that in a rational expectations framework, where all agents maximize expected utility, it is possible for an uninformed manipulator to make a profit, provided investors attach a positive probability to the manipulator being an informed trader.

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