Risk Aversion, Liquidity, and Endogenous Short Horizons

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 shortterm signal, which decreases the informativeness of prices about the long run. Finally, we also explore parameter spaces under which longterm informed agents wish to voluntarily disclose their information.