Financial traders are rewarded for trading on info that implies a non-zero difference between their expectation of the future price, and the current price. (Well, the “current” price here is the price their order would get if sent in now, and for positive revenue this difference must be larger than the info of an average trade, plus transaction costs.) If this difference is positive, they buy; if it’s negative, they sell.
Many traders are human. They willl likely discount the future by around 50% every generation. Large orgs will try to compensate - but it will still likely lead to some short-termism.
If all you do is hold the asset without trading enough to push the price in a sustained manner, there is none of what you call "social value"; your information about the value of the asset is not available to a decision maker via the market price, because the market price has returned to the equilibrium which does not account for your info.
If I am understanding your model correctly, you are not talking about one trade, but about a sequence of trades necessary to sustain the market at a given price difference ("info size") from the baseline over a given duration. Clearly how hard it is to push the market price up or down by a fixed dollar amount will depend on trading volume in the market. You said that the other traders are ignorant of the new information for the whole duration, so the other traders will be pushing the price back towards the baseline for the whole duration.
Supporting this interpretation, a trader with secret information will get more profit, assuming he knows the duration, if he spreads out his trades over it. Because that way he buys or sells at closer to the baseline price. A single big sale or purchase would alter the baseline price more, reducing his profit.
Further supporting this interpretation, you said that "social value" is proportional to info size times duration; this only makes sense if the decision maker is able to act on a price difference in the market that remains visible in the market price over the whole duration. And to the decision maker the visible signal is the change in price, not the presence or absence of a single trade. If I am misunderstanding you then I don't see how to make sense of the "social value" part.
"Enough capital to support the required trading volume" goes as "info size times duration"? This I doubt. "Info size" is defined by you as "price change resulting from a trade," so what you're talking about is how much capital it takes to sustain a given price change in the market over a given period of time. That does increase with duration and price change, but it also at least scales with the overall market price, and with the quantity of other trades in the market.
As a consequence, opportunity cost also scales with the overall market price and the quantity of other trades in the market, as well as duration and "info size."
Whereas, "social value" does not seem to increase with overall market price or the quantity of other trades in the market. So "social value" is not proportional to opportunity cost. Nor is "net revenue"; if the initial market price is higher, opportunity cost of making the trades is higher, but profit remains the same.
Many traders are human. They willl likely discount the future by around 50% every generation. Large orgs will try to compensate - but it will still likely lead to some short-termism.
If all you do is hold the asset without trading enough to push the price in a sustained manner, there is none of what you call "social value"; your information about the value of the asset is not available to a decision maker via the market price, because the market price has returned to the equilibrium which does not account for your info.
No, I don't need to push the price in order to profit from my private info. But I do have to hold my new assets for the info duration period.
If I am understanding your model correctly, you are not talking about one trade, but about a sequence of trades necessary to sustain the market at a given price difference ("info size") from the baseline over a given duration. Clearly how hard it is to push the market price up or down by a fixed dollar amount will depend on trading volume in the market. You said that the other traders are ignorant of the new information for the whole duration, so the other traders will be pushing the price back towards the baseline for the whole duration.
Supporting this interpretation, a trader with secret information will get more profit, assuming he knows the duration, if he spreads out his trades over it. Because that way he buys or sells at closer to the baseline price. A single big sale or purchase would alter the baseline price more, reducing his profit.
Further supporting this interpretation, you said that "social value" is proportional to info size times duration; this only makes sense if the decision maker is able to act on a price difference in the market that remains visible in the market price over the whole duration. And to the decision maker the visible signal is the change in price, not the presence or absence of a single trade. If I am misunderstanding you then I don't see how to make sense of the "social value" part.
I don't see how the opportunity cost of the capital used to support a trade depends at all on the number of other trades in the market.
"Enough capital to support the required trading volume" goes as "info size times duration"? This I doubt. "Info size" is defined by you as "price change resulting from a trade," so what you're talking about is how much capital it takes to sustain a given price change in the market over a given period of time. That does increase with duration and price change, but it also at least scales with the overall market price, and with the quantity of other trades in the market.
As a consequence, opportunity cost also scales with the overall market price and the quantity of other trades in the market, as well as duration and "info size."
Whereas, "social value" does not seem to increase with overall market price or the quantity of other trades in the market. So "social value" is not proportional to opportunity cost. Nor is "net revenue"; if the initial market price is higher, opportunity cost of making the trades is higher, but profit remains the same.