Survey_CF_2008

Abstract

We consider a multi-period rational expectations model in which risk-averse investors differ in their information on past transaction prices (the ticker). Some investors (insiders) observe prices in real-time whereas other investors (outsiders) observe prices with a delay. l. The model considers the market for a risky security with risk averse investors who possess heterogeneous signals about the payoff of the security. Investors trade to share the risk associated with their initial holdings of the security, and to speculate on their private information. As transaction prices are informative about the asset payoff, insiders have an informational advantage over outsiders, and thus enjoy a higher expected utility. We call the value of the ticker the maximum fee that, other things equal, an investor is willing to pay to be an insider. This value depends both on the scope and timeliness of information dissemination. Indeed, insiders’ demand depends on their privileged price information, which therefore transpires into clearing prices. Hence, outsiders can partially catch up with insiders’ information by conditioning their demands on the clearing price when they trade.4 Now, the informativeness of the clearing price about the information contained in past prices increases with the proportion of insiders and decreases with latency. Accordingly, the value of the ticker is inversely related to the proportion of insiders and positively related to latency.