46 Pages Posted: 28 Jul 2020 Last revised: 4 Feb 2022
Date Written: July 2020
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 difficulty for investors. If several arbitrageurs have private information, inefficient equilibria can arise, where investors' attention is overloaded and substantial mispricing persists.
Keywords: advertising, imits to arbitrage, limited attention, price discovery
JEL Classification: D84, G11, G14, G2
Suggested Citation: Suggested Citation