We examine how diﬀerent investment horizons, and consequently the number of hands through which a security passes during its life, aﬀect prices in a laboratory market populated by overlapping generations of investors. We ﬁnd that (i) price deviations are larger in markets populated only by short-horizon investors compared to markets with long-horizon investors; (ii) for a given maturity of security, price deviations increase as investment horizons shrink (and frequency of transfers increases); and (iii) short investment horizons create upward pressure on prices when liquidity is high and downward pressure when liquidity is low.
Hirota, Shinichi; Huber, Juergen; Stöckl, Thomas; and Sunder, Shyam, "Investment Horizons and Price Indeterminacy in Financial Markets" (2015). Cowles Foundation Discussion Papers. 2436.