Insiders-Outsiders, Transparency, and the Value of the Ticker

Abstract

We consider a multi-period rational expectations model in which informed traders (speculators) differ in their access to information on past transaction prices (the ticker). Insiders observe the entire price history before trading whereas outsiders observe past prices with a delay. We show that the fee that an outsider is willing to pay to become an insider decreases with the number of insiders and increases with latency in information dissemination. Moreover, speculators’ welfare decreases with the number of insiders. Thus, both speculators and data vendors can benefit from restrictions on access to information on past trades. Last, we find that an increase in latency impairs market liquidity but has no effect on the informativeness of the ticker.