Speculation and the market for recommendations

The purpose of this paper is to investigate the theoretical value of information in a speculative securities market. A model of speculative equilibrium is developed in a market where an independent profit‐seeking advisor sells information in the form of buy and sell recommendations. These recommendations and the record of the advisor determine traders' speculative commitments, which take explicit account of informational risk. The model leads to a complete specification of the speculative equilibrium which includes stock prices as well as the price that the advisor can charge for providing recommendations.