An arbitrageur with short investment horizon gains from accelerating price discovery by advertising his private information. However, advertising many assets may overload investors’ attention, reducing the number of informed traders per asset, and slowing price discovery. So the arbitrageur optimally concentrates advertising on just a few assets, unless his trades have significant price impact. The arbitrageur’s gain from advertising is increasing in the assets’ mispricing and in the precision of his private information, and is decreasing in its complexity. If several arbitrageurs have private information, inefficient equilibria can arise, where substantial mispricing persists or investors’ attention is overloaded.
Advertising Arbitrage / Kovbasyuk, Sergey; Pagano, Marco. - In: REVIEW OF FINANCE. - ISSN 1572-3097. - 26:4(2022), pp. 799-827. [10.1093/rof/rfac019]
Advertising Arbitrage
Sergey KovbasyukPrimo
;Marco Pagano
Secondo
Membro del Collaboration Group
2022
Abstract
An arbitrageur with short investment horizon gains from accelerating price discovery by advertising his private information. However, advertising many assets may overload investors’ attention, reducing the number of informed traders per asset, and slowing price discovery. So the arbitrageur optimally concentrates advertising on just a few assets, unless his trades have significant price impact. The arbitrageur’s gain from advertising is increasing in the assets’ mispricing and in the precision of his private information, and is decreasing in its complexity. If several arbitrageurs have private information, inefficient equilibria can arise, where substantial mispricing persists or investors’ attention is overloaded.File | Dimensione | Formato | |
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