Giovanni Cespa , Queen Mary, University of London, CSEF-Università di Salerno, and CEPR Thierry Foucault , HEC, Paris, GREGHEC, and CEPR
April 1, 2008
Download full paper
We consider a multi-period rational expectations model in which risk-averse investors differ in their information on past transaction prices (the ticker). 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.
J.E.L classification codes: G10, G12, G14
Keywords:Market data sales, Latency, Transparency, Price discovery, Hirshleifer effect