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Insiders-Outsiders, Transparency and the Value of the Ticker

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Author Info
Cespa, Giovanni
Foucault, Thierry

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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.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 6794.

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Date of creation: Apr 2008
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Handle: RePEc:cpr:ceprdp:6794

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Related research
Keywords: Hirshleifer effect; Market data sales; Price discovery; Transparency;

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Find related papers by JEL classification:
G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies

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References listed on IDEAS
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  1. Dow, J & Rahi, R, 1997. "Informed Trading, Investment, and Welfare," Economics Working Papers eco97/03, European University Institute.
    Other versions:
  2. Marin, Jose M & Rahi, Rohit, 2000. "Information Revelation and Market Incompleteness," Review of Economic Studies, Blackwell Publishing, vol. 67(3), pages 563-79, July.
    Other versions:
  3. Hasbrouck, Joel, 1995. " One Security, Many Markets: Determining the Contributions to Price Discovery," Journal of Finance, American Finance Association, vol. 50(4), pages 1175-99, September. [Downloadable!] (restricted)
  4. Verrecchia, Robert E, 1982. "Information Acquisition in a Noisy Rational Expectations Economy," Econometrica, Econometric Society, vol. 50(6), pages 1415-30, November. [Downloadable!] (restricted)
  5. Pagano, Marco & Roell, Ailsa, 1996. " Transparency and Liquidity: A Comparison of Auction and Dealer Markets with Informed Trading," Journal of Finance, American Finance Association, vol. 51(2), pages 579-611, June. [Downloadable!] (restricted)
  6. Madhavan, Ananth, 1995. "Consolidation, Fragmentation, and the Disclosure of Trading Information," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 8(3), pages 579-603. [Downloadable!] (restricted)
  7. Biais, Bruno, 1993. " Price Information and Equilibrium Liquidity in Fragmented and Centralized Markets," Journal of Finance, American Finance Association, vol. 48(1), pages 157-85, March. [Downloadable!] (restricted)
  8. Brennan, Michael J & Cao, H Henry, 1996. "Information, Trade, and Derivative Securities," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 9(1), pages 163-208. [Downloadable!] (restricted)
  9. Craig Pirrong, 2002. "Securities Market Macrostructure: Property Rights and the Efficiency of Securities Trading," Journal of Law, Economics and Organization, Oxford University Press, vol. 18(2), pages 385-410, October.
  10. Luis Angel Medrano & Xavier Vives, 2004. "Regulating Insider Trading When Investment Matters," Review of Finance, Springer, vol. 8(2), pages 199-277. [Downloadable!]
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  11. Hirshleifer, Jack, 1971. "The Private and Social Value of Information and the Reward to Inventive Activity," American Economic Review, American Economic Association, vol. 61(4), pages 561-74, September. [Downloadable!] (restricted)
  12. Admati, Anat R. & Pfleiderer, Paul, 1987. "Viable allocations of information in financial markets," Journal of Economic Theory, Elsevier, vol. 43(1), pages 76-115, October. [Downloadable!] (restricted)
  13. Hellwig, Martin F., 1982. "Rational expectations equilibrium with conditioning on past prices: A mean-variance example," Journal of Economic Theory, Elsevier, vol. 26(2), pages 279-312, April. [Downloadable!] (restricted)
  14. Admati, Anat R. & Pfleiderer, Paul, 1986. "A monopolistic market for information," Journal of Economic Theory, Elsevier, vol. 39(2), pages 400-438, August. [Downloadable!] (restricted)
  15. Mulherin, J Harold & Netter, Jeffry M & Overdahl, James A, 1992. "Prices Are Property: The Organization of Financial Exchanges from a Transaction Cost Perspective," Journal of Law & Economics, University of Chicago Press, vol. 34(2), pages 591-644, October.
  16. Giovanni Cespa, 2007. "Information Sales and Insider Trading with Long-lived Information," CSEF Working Papers 174, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy. [Downloadable!]
  17. Reena Aggarwal & Sandeep Dahiya, 2006. "Demutualization and Public Offerings of Financial Exchanges," Journal of Applied Corporate Finance, Morgan Stanley, vol. 18(3), pages 96-106. [Downloadable!] (restricted)
  18. Admati, Anat R & Pfleiderer, Paul, 1990. "Direct and Indirect Sale of Information," Econometrica, Econometric Society, vol. 58(4), pages 901-28, July. [Downloadable!] (restricted)
  19. Hellwig, Martin F., 1980. "On the aggregation of information in competitive markets," Journal of Economic Theory, Elsevier, vol. 22(3), pages 477-498, June. [Downloadable!] (restricted)
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