Short-term Investment and the Informational Efficiency of the Market

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Abstract
A dynamic market for a risky asset with a continuum of risk averse heterogeneously informed investors and a risk neutral competitive market sector is examined. The market is (semi-strong) informationally efficient due to competitive market making activity. The paper analyzes the effect of investors' horizons on the information content of prices (precision in the estimation of the fundamental value of the risky asset). It is shown that short horizons enhance or reduce price informativeness depending on the temporal pattern of private information arrival. With concentrated arrival of information short horizons reduce price informativeness, with diffuse arrival of information short horizons enhance price informativeness.
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