Insiders-Outsiders, Transparency, and the Value of the Ticker

Abstract

We consider a multi-period rational expectations model in which risk-averse investors differ in their information on past transaction prices (the ticker). Some investors (insiders) observe prices in real-time whereas other investors (outsiders) observe prices with a delay. Hence, the level of transparency is higher when more investors are insiders. A higher level of transparency always promotes informational efficiency but full transparency is never socially optimal. Rather, the Pareto optimal market structure is either fully opaque or has limited transparency (that is, both insiders and outsiders coexist in the market). We also show how the socially optimal level of transparency can be reached by charging a fee for price information. This fee acts as a Pigovian tax and is set high enough to curb excessive acquisition of ticker information.

Keywords: Market Data Sales, Latency, Transparency, Price Discovery, Hirshleifer effect

JEL Classification: G10, G12, G14