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Insiders-Outsiders, Transparency and the Value of the Ticker

  • Cespa, Giovanni
  • Foucault, Thierry

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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  1. Vives, Xavier, 1995. "Short-Term Investment and the Informational Efficiency of the Market," Review of Financial Studies, Society for Financial Studies, vol. 8(1), pages 125-60.
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  19. José M. Marín & Rohit Rahi, 1996. "Information revelation and market incompleteness," Economics Working Papers 145, Department of Economics and Business, Universitat Pompeu Fabra.
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  23. Cespa, Giovanni, 2004. "Information Sales and Insider Trading," CEPR Discussion Papers 4667, C.E.P.R. Discussion Papers.
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