Flash Traders (Milliseconds) to Indexed Institutions (Centuries): The Challenges of an Agency Theory Approach to Governance in the Era of Diverse Investor Time Horizons
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Flash Traders (Milliseconds) to Indexed Institutions
(Centuries): The Challenges of an Agency Theory
Approach to Governance in the Era of Diverse Investor
Time Horizons
Harold Weston* & Conrad Ciccotello**
INTRODUCTION
One aspect of the problem in trying to align a corporate investment
horizon (the time period for return on investment) to that of its
shareholders is the enormous range of investor time horizons, which can
range from milliseconds to centuries. Flash (high-frequency) traders hold
shares for milliseconds, day traders for a few hours or days, some mutual
funds and other institutional investors show a holding period limited to a
few months to a year, and private equity and most mutual funds seem
generally limited to three to five years. Beyond that, some actively
managed mutual funds may be up to ten years, as evidenced by turnover
ratios. Passively-managed index funds are oblivious to time periods,
leaving that decision entirely to the index makers, which might range from
a year or so for shifting indices like small cap value versus small cap
growth sectors to total market indices that have few changes over ten to
thirty years or longer. University endowments may have a century-length
horizon.' Whose horizon controls? Should officers and directors be
obliged to make decisions that will increase shareholder value (i.e. stock
price) today or this week or this quarter or this year or this decade or this
century or somehow weigh the various shareholders' diverse interests in
* Clinical Associate Professor, Georgia State University, J. Mack Robinson College of Business and
College of Law (secondary appointment).
** Professor and Director of the Reiman School of Finance University of Denver, Daniels College of
Business.
1. DAVID F. SWENSEN, PIONEERING PORTFOLIO MANAGEMENT, AN UNCONVENTIONAL
APPROACH TO INSTITUTIONAL INVESTMENT 2 (2000) [hereinafter SWENSEN, PIONEERING PORTFOLIO
MANAGEMENT].
613](ViewImageLocal?handle=hein.journals/sealr41&div=28&collection=&method=preview&ext=.png&size=3)
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