Risk Aversion, Liquidity, and Endogenous Short Horizons

REVIEW OF FINANCIAL STUDIES, Vol. 9 No. 2

Posted: 24 Jul 1996  

Avanidhar Subrahmanyam

University of California, Los Angeles (UCLA) - Finance Area; Institute of Global Finance, UNSW Business School; Financial Research Network (FIRN)

Craig W. Holden

Indiana University - Kelley School of Business - Department of Finance

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Abstract

We analyze a competitive model in which different information signals get reflected in value at different points in time. If investors are sufficiently risk averse, we obtain an equilibrium in which all investors focus exclusively on the short-term. In addition, we show that increasing the variance of informationless trading increases market depth but causes a greater proportion of investors to focus on the short-term signal, which decreases the informativeness of prices about the long-run. Finally, we also explore parameter spaces under which long-term informed agents wish to voluntarily disclose their information.

JEL Classification: D40, D82, G14

Suggested Citation

Subrahmanyam, Avanidhar and Holden, Craig W., Risk Aversion, Liquidity, and Endogenous Short Horizons. REVIEW OF FINANCIAL STUDIES, Vol. 9 No. 2. Available at SSRN: https://ssrn.com/abstract=7612

Avanidhar Subrahmanyam

University of California, Los Angeles (UCLA) - Finance Area ( email )

Los Angeles, CA 90095-1481
United States
310-825-5355 (Phone)
310-206-5455 (Fax)

Institute of Global Finance, UNSW Business School

Sydney, NSW 2052
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

Craig W. Holden (Contact Author)

Indiana University - Kelley School of Business - Department of Finance ( email )

Kelley School of Business
1309 E. 10th St.
Bloomington, IN 47405
United States
812-855-3383 (Phone)
812-855-5875 (Fax)

HOME PAGE: http://www.kelley.iu.edu/cholden

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