Information Sales and Strategic Trading
AbstractWe study information sales in financial markets with strategic risk-averse traders. Our main result establishes that the optimal selling mechanism is one of the following two: (i) sell to as many agents as possible very imprecise information; (ii) sell to a single agent a signal as precise as possible. As noise trading per unit of risk-tolerance becomes large, the newsletters or rumors associated with (i) dominate the exclusivity contract in (ii). The optimal information sales contracts share similar properties in market-orders and limit-orders markets, while models in which competitive behavior is assumed yield qualitatively different equilibria. The endogeneity of the information allocation implies a ranking reversal of the informational efficiency of prices across markets and models. Equilibrium prices become more informative in market-orders than in limit-orders markets, and the model with imperfect competition yields more informative prices than its competitive counterpart. These results are driven by the seller of information offering more precise signals when the externality in the valuation of information is relatively less intense.
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Bibliographic InfoPaper provided by Collegio Carlo Alberto in its series Carlo Alberto Notebooks with number 45.
Length: 36 pages
Date of creation: 2007
Date of revision:
markets for information; imperfect competition; share auctions.;
Find related papers by JEL classification:
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
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