This article examines how the extent of short-term trading relates to the efficiency of stock prices. We employ a new duration measure based on quarterly institutional investors’ portfolio holdings, next to existing proxies such as trading volume, the percentage of transient institutions, and fund turnover. Momentum returns and subsequent returns reversal are generally much stronger for stocks held primarily by short-term investors, especially if these investors recently had superior recent performance which could make them overconfident. Our results point toward the behavioral theory in Daniel, Hirshleifer and Subrahmanyam (1998) and seem inconsistent with short-term institutions improving efficiency.

We use a sharp regression discontinuity design (RDD) to show that victories by women candidates in close House, Senate, and gubernatorial elections lead to an increase in female directors in firms located in the candidates’ districts. The causal effect is higher when the media coverage of the woman candidate is higher, when voter turnout is high, and when firms have more local directors and local institutional investors. The heterogeneous regression discontinuity (RD) effects suggest that electoral wins may influence local gender norms and firms’ board diversity through multiple channels, including conveying majority views on gender-related social norms, increasing exposure to exemplar women, and facilitating learning about women’s different but effective leadership styles. The evidence suggests a potential spillover effect from women’s political leadership to the corporate world.

Among high active share portfolios—whose holdings differ substantially from their benchmark—only those with patient investment strategies (with holding durations of over two years) on average outperform, over 2% per year. Funds trading frequently generally underperform, including those with high active share. Among patient funds, separating closet index from high active share funds matters, as low active share funds on average underperform even with patient strategies. Our results suggest that U.S. equity markets provide opportunities for longer-term active managers, perhaps because of the limited arbitrage capital devoted to patient and active investment strategies. The Online Appendix is available at http://ssrn.com/abstract=2810798.

We document that stocks that have optimistic (pessimistic) consensus recommendations and are currently held by many short‐term institutions exhibit large stock‐return reversals: Their large past outperformance (underperformance) is followed by large negative (positive) future alphas. The predictable return reversals originate from overreaction to past recommendation releases and the correction of these overreactions around future releases. Results are stronger when earnings news is released and at firms with higher fundamental uncertainty. Further, firms with more short‐term institutions show stronger announcement returns and price drift after recommendation changes. Our results are consistent with models of higher order beliefs where short‐term institutions coordinate trading around public signals.