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| Author: | Cespa, G. |
| Title: | Short-term investment and equilibrium multiplicity |
| Journal: | European Economic Review
2002 : OCT, VOL. 46:9, p. 1645-1670 |
| Index terms: | FINANCE ECONOMICS MARKET EFFICIENCY INFORMATION EQUILIBRIUM ANALYSIS |
| Language: | eng |
| Abstract: | The author studies the effects of the heterogeneity of traders' horizons in a 2-period NREE model where all traders are risk averse. Owing to risk premia, short- termism generates multiple equilibria. In particular two distinct patterns arise. Along the "low trading intensity equilibrium," short termists anticipate a thinner second period market and, owing to risk aversion, scale back their trades. This reduces both risk sharing and information impounding into prices, enforcing a high returns' volatility-low price informativeness equilibrium. Along the "high trading intensity equilibrium," the opposite happens and low volatility-high price informativeness equilibrium arises. |
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