- Stock Duration and Misvaluation
- Number of pages
- Universiteit van Amsterdam/University of Notre Dame/Rutgers University
- Document type
- Working paper
- Faculty of Economics and Business (FEB)
- Amsterdam Business School Research Institute (ABS-RI)
We study whether the presence of short-term investors is related to stock prices using a new measure of stock holding duration. First, we find that holding durations have been stable and, if anything, slightly lengthened over time. Second, we document that the presence of short-term investors is related to temporary price distortions that generate stock return predictability, consistent with a speculative component in stock prices. As short-term investors move into (out of) stocks, their prices tend to go up (down) relative to fundamentals. As the presence of short-term investors is strongly mean-reverting, this creates a predictable pattern in returns.
- September 2013
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