TL;DR
This paper explores how verifiable private information impacts the no-trade theorems, with implications for insider trading, market liquidity, and blockchain oracles.
Contribution
It introduces conditions on private information that can reveal true security values, extending no-trade theorems to new informational settings.
Findings
Verifiable information can lead to increased trade in markets.
Conditions on private info relate to insider trading and market liquidity.
Implications for blockchain oracles and public verification methods.
Abstract
No trade theorems examine conditions under which agents cannot agree to disagree on the value of a security which pays according to some state of nature, thus preventing any mutual agreement to trade. A large literature has examined conditions which imply no trade, such as relaxing the common prior and common knowledge assumptions, as well as allowing for agents who are boundedly rational or ambiguity averse. We contribute to this literature by examining conditions on the private information of agents that reveals, or verifies, the true value of the security. We argue that these conditions can offer insights in three different settings: insider trading, the connection of low liquidity in markets with no trade, and trading using public blockchains and oracles.
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