Everyone knows investors can be impatient. A couple of bad quarters and capital starts running for the exits. Fund managers, in particular, live under the sword of short-term performance. Fall behind the benchmark for a few months and redemptions hit. Careers get judged by the quarter, not the decade.

The paper, “Exploiting Myopia: The Returns to Long-Term Investing” by Jain and Jiao (available on ssrn) argues that this short-term focus creates predictable return patterns. Firms held by investors with longer time horizons earn higher subsequent returns than firms dominated by short-term holders . So, patient capital earns a premium, not because the companies are inherently riskier, but because short-horizon investors won’t hold through the pain.

The authors build a firm-level measure of investor patience, which they call “horizon”, and show that it forecasts returns even after controlling for all the usual factors (size, value, momentum, etc.).

The horizon metric is simple. From 13F filings, they calculate how long active institutions continuously hold a stock, weighted by position size (excluding passive indexers). Horizon is then the share-weighted average of how many quarters each active investor stays in their position.

For example, if a stock is held mostly by active hedge funds flipping positions every few quarters, horizon will be short. If it’s held by pension funds and long-term concentrated managers, horizon will be long.

The conclusions are straightforward:

• A 1% increase in horizon translates to roughly 20 basis points higher monthly returns (2.4% annualized). The effect is robust, with t-stats above 5.
• Stocks in the highest horizon quintile earn about 50 bps per month more than those in the lowest quintile (≈6% annualized).
• The predictive power holds for up to two years. This isn’t just a short-term reversal or microstructure blip—it’s a sustained mispricing.

So yes, “patient capital” actually outperforms.

Further evidence that the effect is real is that it isn’t uniform. It is strongest exactly where myopic managers face the most pain:

• If a stock has high volatility, short-horizon managers can’t stomach the ride. Horizon does a better job predicting winners in this group.
• When a stock has just underperformed, short-term investors are quick.

So, are long-horizon investors just smarter? Maybe they’re the ones with the research resources to find undervalued firms, and horizon is just a proxy for information-processing advantages.

The paper tests this by exploiting two regulatory shocks:

1. The 2004 SEC disclosure rule: Funds had to report holdings quarterly instead of semiannually. That raised the pressure to show good short-term numbers. Result? Horizon declined, and the horizon premium got stronger. That’s exactly what you’d expect if myopia, not skill, drives the effect.
2. The 2009 XBRL mandate: Firms had to provide financials in machine-readable format, which improved data access for analysts. If the Horizon premium came from research advantages, this should have boosted horizon’s predictive power. Instead, nothing happened. No effect.

It seems that horizon isn’t about fundamental analysis capacity. It’s about institutional constraints and incentives—myopia.

For quants and stock pickers, this is another anomaly to harvest: go long firms with long horizon, short those with short horizon (luckily that makes it easier to remember). But practically, the alpha comes from leaning into names avoided by short-term capital—volatile stocks, recent losers, smaller firms.

For allocators, the lesson is broader: capital with a long horizon earns a premium because it provides insurance against everyone else’s impatience. Patient investors get compensated for absorbing the volatility others can’t handle.

It’s the flip side of the liquidity premium: not about how fast you can sell, but how long you can hold.

If you wonder why the horizon premium exists in the first place, blame the industry’s obsession with quarterly league tables. Mutual fund flows follow last year’s winners. Managers hug benchmarks to avoid career risk. Boards fire underperformers after a couple of bad quarters.

None of this is about fundamental value—it’s about optics. And every time the industry makes decisions based on short-term optics, it leaves money on the table for those willing to wait.

As Warren Buffett put it: “The stock market is a device for transferring money from the impatient to the patient.” This paper provides the statistical proof.

The most scarce asset in financial markets isn’t information, it’s patience.

Disclaimer

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