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Trade-Off ? What Trade-Off: Information Production without Illiquidity

Author

Listed:
  • Thierry Foucault

    (HEC Paris - Ecole des Hautes Etudes Commerciales)

  • Kostas Koufopoulos

    (University of Sussex)

  • Roman Kozhan

    (University of Warwick [Coventry])

Abstract

Private information in financial markets enhances the informational content of asset prices and thereby supports efficient resource allocation. Yet, informed traders extract rents at the expense of uninformed traders, generating a tradeoff between price informativeness and liquidity costs. Moreover, equilibrium investment in information acquisition may be socially excessive or insufficient. We show that a market structure separating the market for information from the market for liquidity can simultaneously deliver price informativeness, preserve liquidity, and align private incentives with efficient levels of information production.

Suggested Citation

  • Thierry Foucault & Kostas Koufopoulos & Roman Kozhan, 2026. "Trade-Off ? What Trade-Off: Information Production without Illiquidity ," Working Papers hal-05610503, HAL.
    • Handle: RePEc:hal:wpaper:hal-05610503
    DOI: 10.2139/ssrn.6301699
    as

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