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On the effects of restricting short-term investment, Review of Financial Studies

Abstract

We study the effects of policies proposed for addressing "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 has no negative effect on the information in prices about long-term fundamentals. However, such a policy reduces the profits and utility of short- and long-term investors. Changing policies on the release of short-term information can help long-term investors -- an objective of some policymakers -- at the expense of short-term investors, but it also makes prices less informative and increases costs of speculation.

Type

Article

Author(s)

Nicolas Crouzet, Ian Dew-Becker, Charles Nathanson

Date Published

2019

Citations

Crouzet, Nicolas, Ian Dew-Becker, and Charles Nathanson. 2019. On the effects of restricting short-term investment. Review of Financial Studies.

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