Call for Papers - Price Discovery
THE PURPOSE, USE AND POTENTIAL MISUSE OF STOCK PRICES
IN THE PUBLIC EQUITY MARKET:
CALL FOR PROPOSALS
The Millstein Center for Global Markets and Corporate Ownership (“Millstein Center”) and the Investor Responsibility Research Center Institute (“IRRCI”) have initiated a joint effort to better understand the purpose, use and potential misuse of stock prices in public equity markets. We are therefore requesting proposals for extensive new research projects on the role of stock prices as a corporate governance mechanism—and their effects on the decision making of corporate managements, boards of directors, and investors.
The daily price movement of a company’s public equity is often viewed as an indicator of market approval or disapproval to both routine news, such as quarterly earnings, or unexpected developments such as takeover offers or restructurings. It is assumed that the market price is representative of the market clearing price for all the company’s shareholders, or at least a large proportion of them.
At the same time, much has been written in recent years about the increased “short-termism” of the market. According to data, the mean holding period for US investors has been steadily decreasing: in the 1930s, the average holding period was 10 years for a NYSE traded stock whereas, since 2010, the average holding period has been closer to six-months.1 However, certain data indicates that the time horizon of top shareholders at large companies has remained relatively stable. Recent research, for example, suggests that mutual funds have not materially shortened the duration of their holdings over the last thirty years.2 Other research has suggested that the velocity of trading by short term traders has increased.
However these trends have changed over time, today senior corporate managers and boards of directors appear to be significantly influenced by short-term stock prices. Managers’ reliance on market price as a sentiment indicator suggests that understanding whether and how short-term price fluctuations actually reflect investors’ views is a critical—and under-examined—area for research.
TOPICS OF RESEARCH
Topics of interest include, but are not limited to:
- When does market price accurately or inaccurately reflect the sentiment of underlying shareholders in a company? Market price is ‘instantaneous’ and only determined by those in the market. Therefore, there may be a disconnect between market prices and the sentiment of those shareholders who trade relatively infrequently. How might we study whether such a disconnect exists? Might the disconnect be linked to particular types of information or decisions (for example, mergers and acquisitions)?
- How do stock prices influence board decisions? How do boards of directors digest signals from the market? Are these dynamics different at companies that have aggressive engagement policies and so hear directly from their shareholders? How might we systematically study the influence of prices on managerial decision-making?
- If there is a disconnect between short-term prices and investor sentiment, what other measures of shareholder views could boards use to discern the right course of action? What are the legal/regulatory issues with such an approach? What are the communication challenges? What are the market implications? That is, how might markets react if directors chose to consider other sentiment indicators beyond daily market price movements?
- Topics not specifically mentioned in these pages that fit within the project parameters are welcome.
SUBMISSION OF PROPOSALS
Rather than completed research, the Millstein Center and IRRCI are interested in reviewing, and sponsoring, proposals for new research that explore these important questions. Proposals are encouraged from all academic disciplines including, but not limited to, corporate governance, economics, finance, international business, and law. Scholars are invited to submit proposals or abstracts of 2 to 3 pages outlining the proposed research project, along with a proposed budget and a current CV, by November 15, 2013.
A committee of distinguished leaders and affiliated faculty from the Millstein Center, IRRCI, Columbia Law School, and other institutions will select a small group of research proposals for funding. Awardees will be notified by December 15, 2013. Completed drafts will be expected by July 18, 2014.
There is no submission fee. Papers must be in English. Selected authors will present their findings at a Columbia University conference, tentatively scheduled for September 19, 2014.
AWARD / HONORARIUM / TRAVEL
Awards will be based, in part, on the nature of the proposal, including whether the submission proposes new research or is an extension of existing work, and the direct costs related to the proposed research. The maximum award will be $10,000. In addition, for those projects accepted for presentation at the Millstein Center academic conference, organizers will pay for travel by one presenter per paper to Columbia University, along with room and board in New York, NY, USA for the duration of the event.
If you wish to have your proposal considered, please submit your abstract or proposal electronically as a Word or PDF document. To the extent possible, please describe the budget for the proposal in detail, including the costs of the researchers’ time, direct costs of data purchase and research support, and any other relevant costs. All identifying information should be attached via a separate page, and the submission sent via email to:
Millstein Center for Global Markets and Corporate Ownership
1 Saft, James. Reuters. “The wisdom of exercising patience in investing.” Mar 2, 2012.
2 Cremers, Martijn; Pareek, Ankur; and Sautner, Zacharias. “Stock Duration and Misvaluation.” February 14, 2013