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Advertising Arbitrage

Author

Listed:
  • Sergey Kovbasyuk

    (New Economic School)

  • Marco Pagano

    (University of Naples Federico II,)

Abstract

An arbitrageur with short investment horizon gains fr om 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.

Suggested Citation

  • Sergey Kovbasyuk & Marco Pagano, 2022. "Advertising Arbitrage," Working Papers w0287, New Economic School (NES).
    • Handle: RePEc:abo:neswpt:w0287
    as

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    File URL: https://www.nes.ru/files/Preprints-resh/WP287.pdf
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    References listed on IDEAS

    as
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    Cited by:

    1. Elias Albagli & Christian Hellwig & Aleh Tsyvinski, 2024. "Information Aggregation with Asymmetric Asset Payoffs," Journal of Finance, American Finance Association, vol. 79(4), pages 2715-2758, August.

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    Keywords

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    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G2 - Financial Economics - - Financial Institutions and Services
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations

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