Discussion Paper Details

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Title: Insiders-Outsiders, Transparency and the Value of the Ticker

Author(s): Giovanni Cespa and Thierry Foucault

Publication Date: April 2008

Keyword(s): Hirshleifer effect, Market data sales, Price discovery and Transparency

Programme Area(s): Financial Economics

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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Bibliographic Reference

Cespa, G and Foucault, T. 2008. 'Insiders-Outsiders, Transparency and the Value of the Ticker'. London, Centre for Economic Policy Research.