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The Crowding-In Effect of Public Information on Private Information Acquisition

Published online by Cambridge University Press:  07 April 2025

Jun Aoyagi Open the ORCID record for Jun Aoyagi [Opens in a new window]
Jun Aoyagi*
Affiliation:
Hong Kong University of Science and Technology, Department of Finance
*
[email protected]@ust.hk
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Abstract

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The dissemination of public information regarding an asset’s fundamental value can encourage the acquisition of private information by informed traders, leading to a crowding-in effect. Competing with the crowding-out effect analyzed in prior research, the crowding-in effect shapes the demand for private information in a hump-shaped curve against public information quality. I examine how a for-profit information seller strategically provides information, exploiting this hump-shaped demand curve, and offer theoretical support for the coexistence of free and paid information. The model yields distinctive insights into the equilibrium information structure and market quality when the crowding-in effect drives public information dissemination.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , First View , pp. 1 - 30
Creative Commons
Creative Common License - CCCreative Common License - BY
This is an Open Access article, distributed under the terms of the Creative Commons Attribution licence (http://creativecommons.org/licenses/by/4.0), which permits unrestricted re-use, distribution and reproduction, provided the original article is properly cited.
Copyright
© The Author(s), 2025. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington

Footnotes

This paper is based on Chapter 1 of Aoyagi’s doctoral dissertation submitted to UC Berkeley in 2021. I am especially grateful to Thierry Foucault (the editor) and an anonymous referee for their detailed comments and suggestions, which substantially improved the paper. I also appreciate the constructive feedback from Nicolae Gârleanu, Takahiro Hattori, Terry Hendershott, Kei Kawakami, David Sraer, Yuki Sato, Christine Parlour, Yan Xiong, and the seminar participants at the University of Tokyo, Berkeley Haas, the TMU QFin Seminar, and HKUST.

Funding Statement. This research received no specific funding.

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