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