The term structure of market efficienty

We study the impact of investor investment horizon on information choice and the ability of stock prices to aggregate information of di erent payo horizons the Term Structure of Market E ciency (TSME). We do so in a dynamic rational expectation economy with both short-term and long-term investors who can acquire information about short-term or long-term payoffs. First, we nd that long-term investors buy both more long-term as short-term information than short-term investors do. Second, the presence of long-term investors increases the willingness of short-term investors to acquire long-term information. This arises since short-term investors care about long-term information to the extent that future prices at which they liquidate their investments reflect long-term payoffs and a larger share of long-term investors increases future price informativeness. Third, the slope of the TMSE is generally decreasing since due to market memory, short-term information was already incorporated in past asset prices. Only for extremely low costs for long-term information acquisition, the slope of the TMSE can be increasing.