Exploiting Myopia: The Returns to Long-Term Investing
Study finds firms held longer by active institutions earn higher future returns due to institutional myopia, not better analysis. A Horizon metric from 13F filings, excluding indexers, counts consecutive holding quarters. Horizon earns about 50 bps per month near 6 percent yearly. The effect is strongest in volatile losers. After the 2004 SEC quarterly disclosure rule, Horizon dropped and the return slope rose by 60 bps per month. The 2009 XBRL rule had no impact.
What it examines
The paper tests whether investor short-termism creates mispricing. It builds a firm-level Horizon from 13F filings—the share-weighted quarters active institutions hold a stock—and examines if longer Horizon predicts returns. Using cross-sectional regressions, portfolio sorts, interactions, and policy DiDs (2004 disclosure, XBRL), it separates myopia from information advantages.
What it concludes
Firms with longer Horizon earn higher future returns, especially in high-volatility, recent-loser, and small stocks. The 2004 rule cut Horizon and strengthened Horizon--return links; XBRL did not, pointing to institutional myopia. Uses: factor investing, manager evaluation, targeting patient investors, regulation. Limits: 13F coverage, trading costs, brief windows. Future: demand systems, international, real effects.
Evidence objects
Horizon measures share-weighted quarters active institutions hold a stock; it prices in Fama-MacBeth ($t>5$), delivers $50$ bps/month (~$6%$ annually), alphas $12\text{--}32$ bps/month, loads on value, profitability, investment; against size, momentum.
key_findings bullet 1 · key_findings · validation V0
Premium concentrates where myopic managers struggle-high idiosyncratic volatility and recent losers-and strengthens after the 2004 SEC mutual fund disclosure rule: treated firms' Horizon falls, Horizon-return slope steepens by $60$ bps/month.
key_findings bullet 2 · key_findings · validation V0
Contrasting 2009 XBRL mandate eased analysis yet left Horizon and returns unchanged, undermining information-processing stories. Strengths: transparent measure, cross-section/time-series tests, DiD. Caveats: 13F coverage, complex aggregation, small-cap costs, short windows.
key_findings bullet 3 · key_findings · validation V0
Introduces a shareholder-weighted firm-level holding-period measure, \$Horizon\$, from 13F filings, capturing patient-capital scarcity. Demonstrates cross-sectional return predictability, amplified under institutional myopia (high idiosyncratic volatility, weak recent returns). Uses the 2004 SEC disclosure-frequency shockrather than XBRLto identify myopia over information advantages. Offers incremental, advances for mid/low-frequency equity strategies and portfolio construction.
key_findings bullet 4 · key_findings · validation V0
Raw abstract and provenance
Investment managers often face short-term incentives, such as redemption pressure following recent weak performance, that discourage them from holding
Source row: 757 · abstract type: snippet