In financial economics, the no-trade theorem states that if markets are in a state of efficient equilibrium, there are no noise traders or other non-rational interference with prices, and the way traders acquire information is itself common knowledge, then even a trader who holds private information won't be able to profit from it. The assumptions are deliberately unrealistic, but the theorem still bears on debates over inside information and on why markets sometimes trade very little even when participants disagree. Paul Milgrom and Nancy Stokey demonstrated the result in their 1982 paper, Information, Trade and Common Knowledge.
Facts
StatementIf markets are in efficient equilibrium, there are no non-rational interferences with prices, and the structure of information acquisition is common knowledge, then none of the traders with private information can profit from it. 1 Classification
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Sources
1. No-trade theorem - Wikipedia
Introduction, first sentence
then even though some traders may possess private information, none of them will be in a position to profit from it.
Introduction, last sentence
It was demonstrated by Paul Milgrom and Nancy Stokey in their 1982 paper
In Group: Economic Theory, Lead section
In financial economics, the no-trade theorem states
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