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 European Science Foundation Network in Financial Markets, c/o C.E.P.R, 77 Bastwick Street, London EC1V 3PZ in its series CEPR Financial Markets Paper with number 0034.
Date of creation: Jan 1994
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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.
- Vives, X., 1993. "Short-Term Investment and the Informational Efficiency of the Market," UFAE and IAE Working Papers 207.93, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
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