1.Consider a variation of the Glosten-Milgrom sequential trade model where the asset's value V can take

three values. Suppose that the true value of stock in Trident Corporation can be, with equal probability, either

VH = 3/4 , VL = 1/4 , or some middle value VM.

Let a= 1/3 of the traders be informed insiders, while the remaining 1 a= 2/3 are uninformed noise traders.

Assume as always that informed traders always buy when V = VH and sell when V = VL, while uninformed

traders buy or sell with equal probability.

The focus of this problem is the traders' behavior when V = VM.

(a) Show that there is no value of VM for which informed traders randomize between buying and selling.