Investment Horizons and Price Indeterminacy in Financial Markets

Shinichi Hirota, Juergen Huber, Thomas Stockl and Shyam Sunder
Additional contact information
Shinichi Hirota: School of Commerce, Waseda University
Juergen Huber: Dept. of Finance, University of Innsbruck
Thomas Stockl: Dept. of Banking and Finance, University of Innsbruck

No 2001, Cowles Foundation Discussion Papers from Cowles Foundation for Research in Economics, Yale University

Abstract: We examine how different investment horizons, and consequently the number of hands through which a security passes during its life, affect prices in a laboratory market populated by overlapping generations of investors. We find that (i) price deviations are larger in markets populated only by short-horizon investors compared to markets with long-horizon investors; (ii) for a given maturity of security, price deviations increase as investment horizons shrink (and frequency of transfers increases); and (iii) short investment horizons create upward pressure on prices when liquidity is high and downward pressure when liquidity is low.

Keywords: Experimental finance; Short-horizon investors; Rational expectations; Price efficiency; Overlapping generations (search for similar items in EconPapers)
JEL-codes: C91 G11 G12 (search for similar items in EconPapers)
Pages: 56 pages
Date: 2015-06
New Economics Papers: this item is included in nep-exp
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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