# Informed traders do know the cross section of the privately known signal between each other

I am having the following setup of privately known signals and I am trying to understand an assumption. Here, I quote the setup.

Consider two agents idexed by $$i=\{1,2\}$$ and each one observes some privately noisy signal, that is \begin{align}s_i=\tilde{v}+\tilde{u_{i}}\end{align} where $$(\tilde{v},\tilde{u_{i}})$$ are identically distributed, with $$\tilde{v}\sim N(v,\sigma_{v}^2)$$ stand for the payoff of the risky asset and $$\tilde{u_{i}}\sim N(0,\sigma_{u_{i}}^2)$$ denotes the error term of each of the privately known signals. Also, it holds that $$\sigma_{(u_1,u_2)}\neq 0$$ and $$\sigma_{(v,u_1)}=0=\sigma_{(v,u_2)}$$.

The assumption that I am trying to understand following the aforementioned setup is the following:

$$$$Every informed agent does know the cross sectional distribution of the privately knonw noisy signal that the other agent observes." Also in the market, there are uninformed traders etc. Does this mean, that in fact they know exactly the signal that each other observes or do I catch it wrong?

• Hi: It sounds to me like an informed trader $j$ say, knows $v$, $\sigma^2_{v}$ and $\sigma^2_{u_{i}}$ of every other trader $i$, whether $i$ is informed or uninformed. So, this is not the exact signal because these are just the parameters of the normal distributions of the two components of the unknown signal. – mark leeds Aug 2 '20 at 3:47
• Well, I believe that you are right. I have the same feeling, after I read it again and again. – Hunger Learn Aug 2 '20 at 5:12
• if it's a paper, then probably best to confirm with the author but I think that's right. – mark leeds Aug 2 '20 at 19:53
• I have not seen it in some paper...so that is why i am not making any reference...but I think that in Glosten (1989) you can find a similar assumption. Specificaly in Glosten's paper it says A typical market maker is assumed to be risk neutral, facing no inventory costs or constraints and ignorant of the endowment vector and the realization of the information. He does know the crosssectional distribution of these variables"... – Hunger Learn Aug 3 '20 at 6:39
• Gotcha. In that case, I think what we're saying is correct. – mark leeds Aug 4 '20 at 11:48