Advertising Arbitrage

47 Pages Posted: 4 Sep 2020 Last revised: 4 Apr 2022

See all articles by Sergey Kovbasyuk

Sergey Kovbasyuk

New Economic School, Moscow

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: April 1, 2022

Abstract

An arbitrageur with short investment horizon gains from accelerating price discovery by advertising his private information. However, advertising many assets may overload investors' attention, reducing the number of informed traders per asset and slowing price discovery. So the arbitrageur optimally concentrates advertising on just a few assets, unless his trades have significant price impact. The arbitrageur's gain from advertising is increasing in the assets' mispricing and in the precision of his private information, and is decreasing in its complexity. If several arbitrageurs have private information, inefficient equilibria can arise, where substantial mispricing persists or investors' attention is overloaded.

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

JEL Classification: G11, G14, G2, D84

Suggested Citation

Kovbasyuk, Sergey and Pagano, Marco, Advertising Arbitrage (April 1, 2022). CFS Working Paper, No. 641, 2021, Available at SSRN: https://ssrn.com/abstract=3660945 or http://dx.doi.org/10.2139/ssrn.3660945

Sergey Kovbasyuk

New Economic School, Moscow ( email )

Skolkovskoe shosse 45
Moscow, Moscow
Russia
+393484523151 (Phone)

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
+39 081 675306 (Phone)
+39 081 7663540 (Fax)

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

Via Cintia
Complesso Monte S. Angelo
Naples, Naples 80126
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
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

HOME PAGE: http:/www.ecgi.org

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