DP15064 Advertising Arbitrage
|Author(s):||Sergei Kovbasyuk, Marco Pagano|
|Publication Date:||July 2020|
|Keyword(s):||advertising, limited attention, Limits to Arbitrage, price discovery|
|JEL(s):||D84, G11, G14, G2|
|Programme Areas:||Financial Economics|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=15064|
Arbitrageurs with a short investment horizon gain from accelerating price discovery by advertising their private information. However, advertising many assets may overload investors' attention, reducing the number of informed traders per asset and slowing price discovery. So arbitrageurs optimally concentrate advertising on just a few assets, which they overweight in their portfolios. Unlike classic insiders, advertisers prefer assets with the least noise trading. If several arbitrageurs share information about the same assets, inefficient equilibria can arise, where investors' attention is overloaded and substantial mispricing persists. When they do not share, the overloading of investors' attention is maximal.