Advertising Arbitrage

34 Pages Posted: 28 Jul 2020 Last revised: 16 Aug 2020

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: July 2020

Abstract

Arbitrageurs with a short investment horizon gain from accelerating price discovery by advertising their private information. However, advertising many assets may overload investors' attention, reducing the number of informed traders per asset and slowing price discovery. So arbitrageurs optimally concentrate advertising on just a few assets, which they overweight in their portfolios. Unlike classic insiders, advertisers prefer assets with the least noise trading. If several arbitrageurs share information about the same assets, inefficient equilibria can arise, where investors' attention is overloaded and substantial mispricing persists. When they do not share, the overloading of investors' attention is maximal.

Keywords: advertising, limited attention, Limits to Arbitrage, price discovery

JEL Classification: D84, G11, G14, G2

Suggested Citation

Kovbasyuk, Sergey and Pagano, Marco, Advertising Arbitrage (July 2020). CEPR Discussion Paper No. DP15064, Available at SSRN: https://ssrn.com/abstract=3661407

Sergey Kovbasyuk (Contact Author)

New Economic School ( email )

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

Marco Pagano

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

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Einaudi Institute for Economics and Finance (EIEF)

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Research Institute of Industrial Economics (IFN)

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Centre for Economic Policy Research (CEPR)

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European Corporate Governance Institute (ECGI)

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