Presenter: Thierry Foucault, HEC Paris

Title: Trade-Off? What Trade-Off: Information Production without Illiquidity

Abstract: Private information in financial markets enhances the informational content of asset prices and thereby supports efficient resource allocation. Yet, informed traders extract rents at the expense of uninformed traders, generating a tradeoff between price informativeness and liquidity costs. Moreover, equilibrium investment in information acquisition may be socially excessive or insufficient. We show that a market structure separating the market for information from the market for liquidity can simultaneously deliver price informativeness, preserve liquidity, and align private incentives with efficient levels of information production.

Host: Gyuri Venter

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