Hostname: page-component-cd9895bd7-p9bg8 Total loading time: 0 Render date: 2024-12-24T17:52:43.340Z Has data issue: false hasContentIssue false
  • English
  • Français

Differential Access to Price Information in Financial Markets

Published online by Cambridge University Press:  01 November 2016

David Easley ,
Maureen O’Hara  and
Liyan Yang
Rights & Permissions [Opens in a new window]

Abstract

Core share and HTML view are not available for this content. However, as you have access to this content, a full PDF is available via the ‘Save PDF’ action button.

Recently, exchanges have been directly selling market data. We analyze how this practice affects price discovery, the cost of capital, return volatility, market liquidity, information production, and trader welfare. We show that selling price data increases the cost of capital and volatility, worsens market efficiency and liquidity, and discourages the production of fundamental information relative to a world in which all traders observe prices. Generally, allowing exchanges to sell price information benefits exchanges and harms liquidity traders. Overall, our results suggest that regulations on selling market data can play an important role in improving market quality and trader welfare.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 51 , Issue 4 , August 2016 , pp. 1071 - 1110
Copyright
Copyright © Michael G. Foster School of Business, University of Washington 2016 

References

Admati, A., and Pfleiderer, P.. “A Monopolistic Market for Information.” Journal of Economic Theory, 39 (1986), 400–438.Google Scholar
Admati, A., and Pfleiderer, P.. “Viable Allocations of Information in Financial Markets.” Journal of Economic Theory, 43 (1987), 76–115.CrossRefGoogle Scholar
Admati, A., and Pfleiderer, P.. “Selling and Trading on Information in Financial Markets.” American Economic Review, 78 (1988), 96–103.Google Scholar
Admati, A., and Pfleiderer, P.. “Direct and Indirect Sale of Information.” Econometrica, 58 (1990), 901–928.Google Scholar
Allen, F.“The Market for Information and the Origin of Financial Intermediation.” Journal of Financial Intermediation, 1 (1990), 3–30.Google Scholar
Arnuk, S., and Saluzzi, J.. “Exchanges and Data Feeds: Data Theft on Wall Street.” Themis Trading May 11 (2010).Google Scholar
Barber, B., and Odean, T.. “Boys Will Be Boys: Gender, Overconfidence, and Common Stock Investment.” Quarterly Journal of Economics, 116 (2001), 261–292.CrossRefGoogle Scholar
Biais, B.; Foucault, T.; and Moinas, S.. “Equilibrium Fast Trading.” Journal of Financial Economics, 116 (2015), 292–313.Google Scholar
Boehmer, E.; Jones, C. M.; and Zhang, X.. “Shackling Short Sellers: The 2008 Shorting Ban.” Review of Financial Studies, 26 (2013), 1363–1400.Google Scholar
Boulatov, A., and Dierker, M.. “Pricing Prices.” Working Paper, University of Houston (2007).Google Scholar
Brown, D. J., and Heal, G. M.. “Marginal vs. Average Cost Pricing in the Presence of a Public Monopoly.” American Economic Review (P&P), 73 (1983), 189–193.Google Scholar
Cao, C.; Field, L. C.; and Hanka, G.. “Does Insider Trading Impair Market Liquidity? Evidence from IPO Lockup Expirations.” Journal of Financial and Quantitative Analysis, 39 (2004), 25–46.CrossRefGoogle Scholar
Cespa, G., and Foucault, T.. “Sale of Price Information by Exchanges: Does It Promote Price Discovery?” Management Science, 60 (2014), 148–165.CrossRefGoogle Scholar
Chen, Z., and Wilhelm, W. J.. “Sell-Side Information Production in Financial Markets.” Journal of Financial and Quantitative Analysis, 47 (2012), 763–794.CrossRefGoogle Scholar
Chowdhry, B., and Nanda, V.. “Multimarket Trading and Market Liquidity.” Review of Financial Studies, 4 (1991), 483–511.Google Scholar
Colliard, J.-E., and Foucault, T.. “Trading Fees and Efficiency in Limit Order Markets.” Review of Financial Studies, 25 (2012), 3305–3350.Google Scholar
Easley, D.; Hendershott, T.; and Ramadorai, T.. “Levelling the Trading Field.” Journal of Financial Markets, 17 (2014), 65–93.Google Scholar
Easley, D., and O’Hara, M.. “Microstructure and Ambiguity.” Journal of Finance, 65 (2010), 1817–1846.Google Scholar
Fishman, M., and Hagerty, K.. “The Optimal Amount of Discretion to Allow in Disclosure.” Quarterly Journal of Economics, 105 (1990), 427–444.Google Scholar
Fishman, M., and Hagerty, K.. “The Incentive to Sell Financial Market Information.” Journal of Financial Intermediation, 4 (1995), 95–115.Google Scholar
Foucault, T., and Gehrig, T.. “Stock Price Informativeness, Cross-Listings, and Investment Decisions.” Journal of Financial Economics, 88 (2008), 146–168.Google Scholar
Foucault, T.; Kadan, O.; and Kandel, E.. “Liquidity Cycles and Make/Take Fees in Electronic Markets.” Journal of Finance, 68 (2013), 299–341.Google Scholar
García, D., and Sangiorgi, F.. “Information Sales and Strategic Trading.” Review of Financial Studies, 24 (2011), 3069–3104.CrossRefGoogle Scholar
García, D., and Vanden, J.. “Information Acquisition and Mutual Funds.” Journal of Economic Theory, 144 (2009), 1965–1995.Google Scholar
Gennotte, G., and Leland, H. E.. “Market Liquidity, Hedging, and Crashes.” American Economic Review, 80 (1990), 999–1021.Google Scholar
Glosten, L.“Insider Trading, Liquidity and the Role of the Monopolist Specialist.” Journal of Business, 62 (1989), 211–235.Google Scholar
Goldstein, I., and Yang, L.. “Information Diversity and Complementarities in Trading and Information Acquisition.” Journal of Finance, 70 (2015), 1723–1765.Google Scholar
Hasbrouck, J., and Saar, G.. “Low-Latency Trading.” Journal of Financial Markets, 16 (2013), 646–679.Google Scholar
Hendershott, T., and Moulton, P.. “Automation, Speed, and Stock Market Quality: The NYSE’s Hybrid.” Journal of Financial Markets, 14 (2011), 568–604.Google Scholar
Judd, K.“The Law of Large Numbers with a Continuum of IID Random Variables.” Journal of Economic Theory, 35 (1985), 19–25.Google Scholar
Kandel, E., and Tkatch, I.. “Demand for the Immediacy of Execution: Time Is Money.” Working Paper, Georgia State University and Hebrew University (2008).Google Scholar
Kyle, A.“Informed Speculation with Imperfect Competition.” Review of Economic Studies, 56 (1989), 317–356.Google Scholar
Leland, H.“Insider Trading: Should It Be Prohibited?” Journal of Political Economy, 100 (1992), 859–887.Google Scholar
Odean, T.“Do Investors Trade Too Much?” American Economic Review, 89 (1999), 1279–1298.Google Scholar
O’Hara, M.; Yao, C.; and Ye, M.. “What’s Not There: Odd Lots and Market Data.” Journal of Finance, 69 (2014), 2199–2236.Google Scholar
Ozsoylev, H., and Walden, J.. “Asset Pricing in Large Information Networks.” Journal of Economic Theory, 146 (2011), 2252–2280.CrossRefGoogle Scholar
Peress, J.“Product Market Competition, Insider Trading, and Stock Market Efficiency.” Journal of Finance, 65 (2010), 1–43.CrossRefGoogle Scholar
Peterson, K.“Speed Bump: NYSE Races to Cut Trading-Data Lag.” Wall Street Journal, Dec. 1 (2010).Google Scholar
Subrahmanyam, A.“A Theory of Trading in Stock Index Futures.” Review of Financial Studies, 4 (1991), 17–51.Google Scholar
Veldkamp, L.“Media Frenzies in Markets for Financial Information.” American Economic Review, 96 (2006), 577–601.Google Scholar
Wang, Y.“Why Can Margin Requirements Increase Volatility and Benefit Margin Constrained Investors?” Review of Finance, 20 (2016), 1449–1485.Google Scholar
Zhu, H.“Do Dark Pools Harm Price Discovery?” Review of Financial Studies, 27 (2014), 747–789.Google Scholar