Are Markets Short Sighted?
While the argument is that markets are short sighted and managers are long term, there is little empirical evidence for this statement. * There are hundreds of firms, especially small and start-up firms, which do not have any current earnings and cashflows, do not expect to have any in the near future, but which are still able to raise substantial amounts of money on the basis of expectations of success in the future. If markets were in fact as short term as the critics suggest, these firms should be unable to raise funds in the first place. * If the evidence suggests anything, it is that markets do not value current earnings and cashflows enough and value future earnings and cashflows too much. Studies indicate that stocks with low price-earnings ratios, i.e., high current earnings, have generally been underpriced relative to stocks with high price-earnings ratios. * The market response to research and development and investment expenditure is not uniformly negative, as the ‘short ter
