DP6794 Insiders-Outsiders, Transparency and the Value of the Ticker

Author(s): Giovanni Cespa, Thierry Foucault
Publication Date: April 2008
Date Revised: July 2008
Keyword(s): Hirshleifer effect, Market data sales, Price discovery, Transparency
JEL(s): G10, G14
Programme Areas: Financial Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=6794

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.