Discussion paper

DP15064 Advertising Arbitrage

An arbitrageur with short investment horizon gains from accelerating price discovery by advertising his private information. However, advertising many assets may overload investors' attention, reducing the number of informed traders per asset and slowing price discovery. So the arbitrageur optimally concentrates advertising on just a few assets, unless his trades have significant price impact. The arbitrageur's gain from advertising is increasing in the assets' mispricing and in the precision of his private information, and is decreasing in its difficulty for investors. If several arbitrageurs have private information, inefficient equilibria can arise, where investors' attention is overloaded and substantial mispricing persists.


Kovbasyuk, S and M Pagano (2020), ‘DP15064 Advertising Arbitrage‘, CEPR Discussion Paper No. 15064. CEPR Press, Paris & London. https://cepr.org/publications/dp15064