So I know very little economics, but it seems to me that the usefulness of the stock market is that it allows the possibility of people who can improve a business buying into that business and then improving it. I can't see an that investment solely on the expectation that a stock is undervalued is much use to society at all. Or an investment that lasts just days or even minutes.
What would be the positive and/or negative effects of stipulating a minimum term (e.g. 6 months) that stocks must be held by a purchaser?
What would happen if everyone who bought stock market shares had to hold them for a minimum of 6 months?
byu/TableGrain55 inAskEconomics
Posted by TableGrain55
1 Comment
Investors would price that cost in as a liquidity premium, so stock prices would fall all else equal, and the cost of equity capital would increase. Financing investment then becomes more expensive for businesses, which could reduce real investment and slow growth in turn
You’d expect to see more derivatives bought and sold and more synthetic exposure because people still want to hedge and rebalance their portfolios.
And, though I don’t have any papers at hand, I believe it could potentially lead to information failure on the market. “Buy because it’s undervalued” is a huge part of the mechanism that pushes the prices of financial assets toward fundamentals. So less trading would generally imply slower price discovery and mispricing, which can distort capital allocation