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Indiana University Bloomington

Department of Finance

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Our top-ranked finance faculty are authors of leading textbooks.

Research and Publications

Journal Articles

Risk Aversion, Liquidity, and Endogenous Short Horizons

1996, Review of Financial Studies

Craig W. Holden, Avanidhar Subrahmanyam


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.


Holden, Craig W. and Avanidhar Subrahmanyam (1996), “Risk Aversion, Liquidity, and Endogenous Short Horizons,” The Review of Financial Studies, Vol. 9, pp. 691-722.