Trading on Short-Term Information

Author: Gümbel, Alexander

Source: Journal of Institutional and Theoretical Economics JITE, Volume 161, Number 3, September 2005 , pp. 428-452(25)

Publisher: Mohr Siebeck

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Founded as Zeitschrift für die gesamte Staatswissenschaft in 1844.

As one of the oldest journals in the field of political economy, the Journal of Institutional and Theoretical Economics (JITE) deals traditionally with the problems of economics, social policy, and their legal framework. JITE is listed in the Journal of Economic Literature, the Social Science Citation Index, the International Bibliography of the Social Sciences, and COREJ.
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Abstract:

This paper shows that investors may want fund managers to acquire and trade on short-term instead of more profitable long-term information. This improves learning about managerial ability from performance observations, for two reasons. Firstly, short-term information is of higher quality, which allows the investor to draw sharper inferences over a manager's type. Secondly, performance observations under long-term informed trade are contaminated by noise contained in prices, which further weakens inference. The paper thus explicitly links the degree of short-term information dissemination to the profitability and the learning implications of short-term versus long-term informed trading.

Document Type: Research article

DOI: 10.1628/093245605774259354