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: www.cepr.org/pubs/dps/DP6794.asp.asp

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.