For many scholars and policymakers, “short-termism” behavior in the stock markets is assumed to be a problem. Unsurprisingly, researchers have empirically assessed this issue to better understand its dynamics, extent, and contours.
In a recent paper, Stock Market Short-Termism: What the Empirical Evidence Tells Policymakers, Mark Roe (Harvard) does not contribute more results. Instead, Roe takes a step back and presents a helpful example for empiricists in terms of how to interpret and contextualize results from multiple studies looking at the same general issue (here, stock market short-termism). That is to say, this paper’s contribution speaks to the discrete task of moving from “data to policy recommendations.”
Specifically, Roe considers “what the evidence directly tells us about stock-market-induced short-termism and how that evidence must be evaluated conceptually to reach an economy-wide assessment for policymakers.” What he finds is that for “stock market short-termism, it is harder to move from the data to policy recommendations than is usually thought.” Roe notes an array of factors contributing to the degree of difficulty, including evenly divided academic evidence and varied (and limited) research designs that invite external validity questions.
While empirical legal scholars appropriately focus on executing a coherent research design and generating stable, robust results, additional moves remain. And one of these, for some empirical legal scholars, involves a move from the “data to policy recommendations.” What Roe’s paper helpfully emphasizes is that these secondary and tertiary moves introduce an additional set of challenges and complications that warrant greater attention. An excerpted abstract follows.
“… The typical research effort seeks to measure whether a local treatment induces more local short-termism, not whether the economy-wide impact is severe. But evaluating short-termism’s economy-wide impact is essential for policymaking; policymakers must consider whether the economy is failing to invest or cutting back on R&D because of a stock market afflicted with a truncated time horizon. Local findings (of the impact on a subset of firms with a particular characteristic, such as short-vesting stock options, rapid stock market trading, or hedge fund activism) need not scale to economy-wide results; some local results will do so only serendipitously; and, finally, there are structural reasons why for stock market short-termism one should expect economy-wide results not to match local results. More than most corporate law issues, the short-termism problem faces a high failure-to scale hurdle.”
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