Competing for Attention in Financial Markets

47 Pages Posted: 14 Jun 2010 Last revised: 23 Jun 2010

See all articles by Bruce I. Carlin

Bruce I. Carlin

University of California, Los Angeles (UCLA) - Anderson School of Management

Shaun Davies

University of Colorado at Boulder - Leeds School of Business

Andrew Iannaccone

University of California, Los Angeles (UCLA)

Date Written: June 2010

Abstract

Competition for positive attention in financial markets frequently resembles a tournament, where superior relative performance and greater visibility are rewarded with convex payoffs. We present a rational expectations model in which firms compete for such positive attention and show that higher competition for this prize makes discretionary disclosure less likely. In the limit when the market is perfectly competitive, transparency is minimized. We show that this effect persists when considering general prize structures, prizes that change in size as a result of competition, endogenous prizes, prizes granted on the basis of percentile, product market competition, and alternative game theoretic formulations. The analysis implies that competition is unreliable as a driver of market transparency and should not be viewed as a panacea that assures self-regulation in financial markets.

Suggested Citation

Carlin, Bruce I. and Davies, Shaun and Iannaccone, Andrew, Competing for Attention in Financial Markets (June 2010). NBER Working Paper No. w16085. Available at SSRN: https://ssrn.com/abstract=1624145

Bruce I. Carlin (Contact Author)

University of California, Los Angeles (UCLA) - Anderson School of Management ( email )

110 Westwood Plaza
Los Angeles, CA 90095-1481
United States

Shaun Davies

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

Boulder, CO 80309-0419
United States

Andrew Iannaccone

University of California, Los Angeles (UCLA) ( email )

405 Hilgard Avenue
Box 951361
Los Angeles, CA 90095
United States

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