Abstract
The no-trade result of Milgrom and Stokey, J Econ Theory 26:17–27 (1982), states that if rational traders begin with an ex-ante Pareto optimal allocation then the arrival of information cannot generate trade. This paper allows traders to trade before and after the arrival of information. If there are enough securities to hedge against all payoff relevant risk, then the preinformation-arrival allocation is Pareto optimal and information arrival has no effect. This no-retrade result is the competitive analog of the no-trade result of (1982). However, information generically generates trade when markets are state-contingent incomplete.
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We thank seminar participants at Cambridge, Carnegie Mellon,Cornell, Essex, London, Maastricht, USC, and York and participants at the 2003 SITE, the 2003 SAET and the Fall 2002 Cornell–Penn State Macro Conference. We also thank Karl Shell and a referee for this journal for useful comments
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Blume, L., Coury, T. & Easley, D. Information, trade and incomplete markets. Economic Theory 29, 379–394 (2006). https://doi.org/10.1007/s00199-005-0055-5
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DOI: https://doi.org/10.1007/s00199-005-0055-5