Long-Term Investing: What Determines Investment Horizon?

Abstract

The literature on investment horizon is reviewed in order to enhance the understanding of potential influences on long-term investing by institutional investors. Investment horizon reflects an inter-connected web of influences related to an investor’s circumstances, the design of the investing environment, and the choices that are made by key decision makers. Twelve such influences are identified and discussed. A characterization of investment horizon is offered based around two indicators: discretion over trading and how investment decisions are made, specifically the extent to which they are based on expected near-term price changes versus drivers of long-term value and returns. An overview of the debate over short-term versus long-term investing is also presented.