Working Paper: CEPR ID: DP6794
Authors: Giovanni Cespa; Thierry Foucault
Abstract: Some investors (insiders) observe prices in real-time whereas other investors (outsiders) observe prices with a delay. As prices are informative about the asset payoff, insiders get a strictly larger expected utility than outsiders. Yet, information acquisition by one investor exerts a negative externality on other investors. Thus, investors? average welfare is maximal when access to price information is rationed. We show that a market for price information can implement the fraction of insiders that maximizes investors? average welfare. This market features a high price to curb excessive acquisition of ticker information. We also show that informational efficiency is greater when the dissemination of ticker information is broader and more timely.
Keywords: Hirshleifer effect; Market data; Sales; Price discovery; Transparency
JEL Codes: G10; G14
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Access to ticker information (Y10) | Expected utility of investors (D81) |
| Proportion of insiders (G34) | Speculative value of market participation (G19) |
| Acquisition of ticker information (G10) | Negative externality for all investors (D62) |
| Broader dissemination of ticker information (G19) | Allocative inefficiency (D61) |
| Market for price information (D49) | Optimize the proportion of insiders (D79) |
| Restricting access to ticker information (G19) | Mitigates negative externalities (D62) |