Everyone has an opinion about short-termism. It has been blamed for underinvestment in infrastructure, basic science, human capital, and research and development.
Finance is, or normatively should be, a service function. For example, asset management provides investors with a desirable risk/return profile for their investments and allocates capital (intermediation) where it is needed by society and the real economy.
Viewed with historical distance and perspective, the connections between norms, law, regulation and corporate behavior are quite apparent. What is considered socially (market) acceptable changes over time and location, sometimes slowly and sometimes quite rapidly.
The following blog by HMI Senior Fellow Jon Lukomnik and Jim Hawley, the Head of Applied Research at Truvalue Labs, is a modified version of an article requested by the Principles for Responsible Investment. It is a “preview” of the book the two are researching and writing for Routledge. The anticipated publication date is late 2020 or early 2021. Modern portfolio theory (MPT) – the dominant investment paradigm across the world – is in major need of a refresh. Simply put, MPT is not up to the challenges that confront today’s investors. Although this widely-accepted Nobel Prize-winning financial theory enriched…