Short-Term Investment and the Informational Efficiency of the Market
AbstractA dynamic market for a risky asset with a continuum of risk averse heterogeneously informed investors and a risk neutral competitive market sector is examined. The market is (semi-strong) informationally efficient due to competitive market making activity. The paper analyzes the effect of investors' horizons on the information content of prices (precision in the estimation of the fundamental value of the risky asset). It is shown that short horizons enhance or reduce price informativeness depending on the temporal pattern of private information arrival. With concentrated arrival of information short horizons reduce price informativeness, with diffuse arrival of information short horizons enhance price informativeness.
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Bibliographic InfoPaper provided by Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC) in its series UFAE and IAE Working Papers with number 207.93.
Length: 28 pages
Date of creation: 1993
Date of revision:
information ; risk;
Other versions of this item:
- Vives, Xavier, 1995. "Short-Term Investment and the Informational Efficiency of the Market," Review of Financial Studies, Society for Financial Studies, vol. 8(1), pages 125-60.
- Xavier Vives, 1994. "Short-term Investment and the Informational Efficiency of the Market," CEPR Financial Markets Paper 0034, European Science Foundation Network in Financial Markets, c/o C.E.P.R, 77 Bastwick Street, London EC1V 3PZ.
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