TY  - UNPD
A1  - Kovbasyuk, Sergei
A1  - Pagano, Marco
T1  - Advertising arbitrage
T2  - Center for Financial Studies (Frankfurt am Main): CFS working paper series ; No. 482
N2  - Speculators often advertise arbitrage opportunities in order to persuade other investors and thus accelerate the correction of mispricing. We show that in order to minimize the risk and the cost of arbitrage an investor who identifies several mispriced assets optimally advertises only one of them, and overweights it in his portfolio; a risk-neutral arbitrageur invests only in this asset. The choice of the asset to be advertised depends not only on mispricing but also on its "advertisability" and accuracy of future news about it. When several arbitrageurs identify the same arbitrage opportunities, their decisions are strategic complements: they invest in the same asset and advertise it. Then, multiple equilibria may arise, some of which inefficient: arbitrageurs may correct small mispricings while failing to eliminate large ones. Finally, prices react more strongly to the ads of arbitrageurs with a successful track record, and reputation-building induces high-skill arbitrageurs to advertise more than others.
T3  - CFS working paper series - 482 
KW  - limits to arbitrage
KW  - advertising
KW  - price discovery
KW  - limited attention
Y1  - 2014
UR  - http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/35124
UR  - https://nbn-resolving.org/urn:nbn:de:hebis:30:3-351249
UR  - http://ssrn.com/abstract=2509735
IS  - July 31, 2014
PB  - Center for Financial Studies
CY  - Frankfurt, M.
ER  -