Abstract
We study the effects of policies proposed to address âshort-termismâ in financial markets. We examine a noisy rational expectations model in which investorsâ exposures and information about fundamentals endogenously vary across horizons. In this environment, taxing or outlawing short-term investment doesnât negatively affect the information in prices about long-term fundamentals. However, such a policy reduces short- and long-term investorsâ profits and utility. Changing policies about the release of short-term information can help long-term investorsâan objective of some policy makersâat the expense of short-term investors. Doing so also makes prices less informative and increases costs of speculation.Received June 24, 2018; editorial decision February 19, 2019 by Editor Stijn Van Nieuwerburgh. Authors have furnished an Internet AppendixInternet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.
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