Information Sales and Strategic Trading

Review of Financial Studies (2011) Vol. 24 (9), 3069-3104

53 Pages Posted: 21 Mar 2008 Last revised: 13 Sep 2016

See all articles by Diego Garcia

Diego Garcia

University of Colorado at Boulder - Leeds School of Business

Francesco Sangiorgi

Frankfurt School of Finance & Management gemeinnützige GmbH

Date Written: February 17, 2011

Abstract

We study information sales in financial markets with strategic risk-averse traders. The optimal selling mechanism is one of the following two: (i) sell to as many agents as possible very imprecise information; (ii) sell to a small number of agents information as precise as possible. As risk sharing considerations prevail over the negative effects of competition, the newsletters or rumors associated with (i) dominate the exclusivity contract in (ii). These allocations of information have distinct implications for price informativeness and trading volume, and thus our paper provides a direct link between properties of asset prices and financial intermediation. Moreover, as more information is sold when the externality in its valuation is relatively less intense, we find a ranking reversal of the informational content of prices between (a) market structures (market-orders vs. limit-orders), and (b) models of traders' behavior (imperfect vs. perfect competition).

Keywords: markets for information, imperfect competition, share auctions

JEL Classification: D82, G14

Suggested Citation

Garcia, Diego and Sangiorgi, Francesco, Information Sales and Strategic Trading (February 17, 2011). Review of Financial Studies (2011) Vol. 24 (9), 3069-3104. Available at SSRN: https://ssrn.com/abstract=1107330 or http://dx.doi.org/10.2139/ssrn.1107330

Diego Garcia (Contact Author)

University of Colorado at Boulder - Leeds School of Business ( email )

Boulder, CO 80309-0419
United States

Francesco Sangiorgi

Frankfurt School of Finance & Management gemeinnützige GmbH ( email )

Adickesallee 34
Frankfurt am Main, 60322
Germany

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