Advertising Arbitrage

Marco Pagano and Sergey Kovbasyuk

No 15064, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: 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.

Keywords: Imits to arbitrage; Advertising; Price discovery; Limited attention (search for similar items in EconPapers)
JEL-codes: D84 G11 G14 G2 (search for similar items in EconPapers)
Date: 2020-07
New Economics Papers: this item is included in nep-mic and nep-mst
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Advertising Arbitrage (2022)
Working Paper: Advertising Arbitrage (2022)
Working Paper: Advertising Arbitrage (2022)
Working Paper: Advertising Arbitrage (2022)
Working Paper: Advertising Arbitrage (2020)
Working Paper: Advertising arbitrage (2020)
Working Paper: Advertising arbitrage (2014)
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