Advertising Arbitrage

46 Pages Posted: 28 Jul 2020 Last revised: 4 Feb 2022

See all articles by Sergey Kovbasyuk

Sergey Kovbasyuk

New Economic School, Moscow

Marco Pagano

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

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Date Written: July 2020

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 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

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, Moscow ( email )

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

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

Marco Pagano

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)

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1000 Brussels
Belgium

HOME PAGE: http:/www.ecgi.org

CSEF - University of Naples Federico II - Centre for Studies in Economics and Finance (CSEF) ( email )

Via Cintia
Complesso Monte S. Angelo
Naples, Naples 80126
Italy

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