The term structure of market efficienty

Matthijs Breugem (), Adrian Buss () and Roberto Marfè ()
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Matthijs Breugem: Collegio Carlo Alberto and University of Turin
Adrian Buss: Frankfurt School of Finance and Management and CEPR
Roberto Marfè: Collegio Carlo Alberto and ESOMAS Department, University of Turin

No 103, Working papers from Department of Economics, Social Studies, Applied Mathematics and Statistics (Dipartimento di Scienze Economico-Sociali e Matematico-Statistiche), University of Torino

Abstract: We study the impact of investor investment horizon on information choice and the ability of stock prices to aggregate information of di erent payo horizons the Term Structure of Market E ciency (TSME). We do so in a dynamic rational expectation economy with both short-term and long-term investors who can acquire information about short-term or long-term payoffs. First, we nd that long-term investors buy both more long-term as short-term information than short-term investors do. Second, the presence of long-term investors increases the willingness of short-term investors to acquire long-term information. This arises since short-term investors care about long-term information to the extent that future prices at which they liquidate their investments reflect long-term payoffs and a larger share of long-term investors increases future price informativeness. Third, the slope of the TMSE is generally decreasing since due to market memory, short-term information was already incorporated in past asset prices. Only for extremely low costs for long-term information acquisition, the slope of the TMSE can be increasing.

Keywords: Long-term Investors; Information Acquisition; Price Effciency; Investment Horizon; Institutional Investors (search for similar items in EconPapers)
JEL-codes: G11 G14 G20 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2025-12
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