Review of Financial Studies Vol. 33 No. 1 2020
On the Effects of Restricting Short-Term Investment
Abstract
We study the effects of policies proposed to address “short-termism” in financial markets. We examine a noisy rational expectations model in which investors’ exposures and information about fundamentals endogenously vary across horizons. In this environment, taxing or outlawing short-term investment doesn’t negatively affect the information in prices about long-term fundamentals. However, such a policy reduces short- and long-term investors’ profits and utility. Changing policies about the release of short-term information can help long-term investors—an objective of some policy makers—at the expense of short-term investors. Doing so also makes prices less informative and increases costs of speculation. Received June 24, 2018; editorial decision February 19, 2019 by Editor Stijn Van Nieuwerburgh.
- DOI
- 10.1093/rfs/hhz053
- Volume
- 33
- Issue
- 1
- Pages
- 1-43
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref