Advertising Arbitrage

36 Pages Posted: 14 Oct 2014 Last revised: 25 Oct 2019

See all articles by Sergey Kovbasyuk

Sergey Kovbasyuk

New Economic School

Marco Pagano

University of Naples Federico II - Department of Economics and Statistics; Centre for Studies in Economics and Finance (CSEF); Einaudi Institute for Economics and Finance (EIEF); Research Institute of Industrial Economics (IFN); Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

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Date Written: September 4, 2015

Abstract

When investors have limited attention, an arbitrageur who identifies several mispriced assets will advertise a single asset and overweight it in his portfolio. When several arbitrageurs identify the same arbitrage opportunities, their decisions are strategic complements: they invest in the same asset and advertise it. Then, multiple equilibria may arise, some of which inefficient: arbitrageurs may correct small mispricings while failing to eliminate large ones. Finally, reputation matters: arbitrageurs with a good track record influence prices with their ads more than those with no track record, and even more than arbitrageurs who proved wrong in the past.

Keywords: limits to arbitrage, advertising, price discovery, limited attention

JEL Classification: G11, G14, G02, D84

Suggested Citation

Kovbasyuk, Sergey and Pagano, Marco, Advertising Arbitrage (September 4, 2015). CFS Working Paper No. 482, Available at SSRN: https://ssrn.com/abstract=2509735 or http://dx.doi.org/10.2139/ssrn.2509735

Sergey Kovbasyuk

New Economic School ( email )

Moscow, Moscow
Russia
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3484523151 (Fax)

HOME PAGE: http://https://www.nes.ru/sergej-kovbasyuk

Marco Pagano (Contact Author)

University of Naples Federico II - Department of Economics and Statistics ( email )

Via Cintia - Monte S. Angelo
Napoli, 80126
Italy
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+39 081 7663540 (Fax)

Centre for Studies in Economics and Finance (CSEF) ( email )

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Complesso Monte S. Angelo
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Italy

Einaudi Institute for Economics and Finance (EIEF)

Via Sallustiana, 62
Rome, 00187
Italy

Research Institute of Industrial Economics (IFN)

Box 55665
Grevgatan 34, 2nd floor
Stockholm, SE-102 15
Sweden

Centre for Economic Policy Research (CEPR)

London
United Kingdom

European Corporate Governance Institute (ECGI)

c/o the Royal Academies of Belgium
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1000 Brussels
Belgium

HOME PAGE: http:/www.ecgi.org

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