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Competing for Attention in Financial Markets

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  • Bruce Ian Carlin
  • Shaun William Davies
  • Andrew Miles Iannaccone
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    Abstract

    Competition for positive attention in financial markets frequently resembles a tournament, where superior relative performance and greater visibility are rewarded with convex payoffs. We present a rational expectations model in which firms compete for such positive attention and show that higher competition for this prize makes discretionary disclosure less likely. In the limit when the market is perfectly competitive, transparency is minimized. We show that this effect persists when considering general prize structures, prizes that change in size as a result of competition, endogenous prizes, prizes granted on the basis of percentile, product market competition, and alternative game theoretic formulations. The analysis implies that competition is unreliable as a driver of market transparency and should not be viewed as a panacea that assures self-regulation in financial markets.

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    File URL: http://www.nber.org/papers/w16085.pdf
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    Bibliographic Info

    Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 16085.

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    Date of creation: Jun 2010
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    Handle: RePEc:nbr:nberwo:16085

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