The Effect of Investment Horizon on Institutional Investors' Incentives to Acquire Private Information on Long-Term Earnings

We examine the effect of investment horizon on institutional investors' incentives to acquire private information on long-term earnings. We show that short-horizon institutions possess private information on long-term earnings, but only to the extent that such private information will be reflected in near term stock prices. There is evidence that long-horizon institutions possess private information on long-term earnings, but we find no evidence that long-horizon institutions have a stronger incentive than short-horizon institutions to acquire private information on long-term earnings, regardless of whether such information will be reflected in near term stock prices or not.