Differential Access to Price Information in Financial Markets
Cornell University - Department of Economics
Cornell University - Samuel Curtis Johnson Graduate School of Management
University of Toronto - Rotman School of Management
February 1, 2013
Journal of Financial and Quantitative Analysis (JFQA), Forthcoming
Johnson School Research Paper Series No. 11-2011
Recently exchanges have been directly selling market data. We analyze how this practice affects price discovery, the cost of capital, return volatility, and market liquidity. We show that selling price data increases the cost of capital and volatility, worsens market efficiency and liquidity, and discourages the production of fundamental information relative to a world in which all traders freely observe prices. Generally allowing exchanges to sell price information benefits exchanges and harms liquidity traders. Overall, our results show that allowing exchanges to sell market data, rather than requiring it to be made freely available to the public, is undesirable.
Number of Pages in PDF File: 59
Keywords: Price Data Selling, Cost of Capital, Liquidity, Volatility, Information Acquisition, Complementarities
JEL Classification: G12, G14, G18, D82
Date posted: March 18, 2011 ; Last revised: February 26, 2016
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