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Advertising Arbitrage

Author

Listed:
  • Sergey Kovbasyuk

    (New Economic School)

  • Marco Pagano

    (University of Naples Federico II, CSEF and EIEF)

Abstract

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, inecient equilibria can arise, where investors' attention is overloaded and substantial mispricing persists. When they do not share, the overloading of investors' attention is maximal.

Suggested Citation

  • Sergey Kovbasyuk & Marco Pagano, 2020. "Advertising Arbitrage," Working Papers w0277, New Economic School (NES).
    • Handle: RePEc:abo:neswpt:w0277
    as

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    File URL: https://www.nes.ru/files/Preprints-resh/WP277.pdf
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    References listed on IDEAS

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    Cited by:

    1. Kahraman, Bige & Pachare, Salil, 2018. "Show us your shorts!," CEPR Discussion Papers 12658, C.E.P.R. Discussion Papers.
    2. Brav, Alon & Dasgupta, Amil & Mathews, Richmond D., 2022. "Wolf pack activism," LSE Research Online Documents on Economics 112118, London School of Economics and Political Science, LSE Library.
    3. Marco Di Maggio & Francesco Franzoni & Amir Kermani & Carlo Sommavilla, 2017. "The Relevance of Broker Networks for Information Diffusion in the Stock Market," NBER Working Papers 23522, National Bureau of Economic Research, Inc.
    4. Dasgupta, Amil & Brav, Alon & Mathews, Richmond, 2016. "Wolf Pack Activism," CEPR Discussion Papers 11507, C.E.P.R. Discussion Papers.

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    More about this item

    Keywords

    limits to arbitrage; advertising; price discovery; limited attention;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G2 - Financial Economics - - Financial Institutions and Services
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations

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