Trade-Off ? What Trade-Off: Information Production without Illiquidity *

Thierry Foucault, Kostas Koufopoulos and Roman Kozhan
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Thierry Foucault: HEC Paris - Ecole des Hautes Etudes Commerciales
Kostas Koufopoulos: University of Sussex
Roman Kozhan: University of Warwick [Coventry]

Working Papers from HAL

Abstract: Private information in financial markets enhances the informational content of asset prices and thereby supports efficient resource allocation. Yet, informed traders extract rents at the expense of uninformed traders, generating a tradeoff between price informativeness and liquidity costs. Moreover, equilibrium investment in information acquisition may be socially excessive or insufficient. We show that a market structure separating the market for information from the market for liquidity can simultaneously deliver price informativeness, preserve liquidity, and align private incentives with efficient levels of information production.

Keywords: Asymmetric information; Optimal mechanism; Information production; Initial Price Offerings (search for similar items in EconPapers)
Date: 2026-05-04
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Persistent link: https://EconPapers.repec.org/RePEc:hal:wpaper:hal-05610503

DOI: 10.2139/ssrn.6301699

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