International Comparisons on Stock Market Short‐termism: How Different is the UK Experience?

Using data from five major stock markets and a vector autoregression estimation procedure underpinned by the traditional intertemporal capital asset pricing model, initial evidence suggests that the UK investing community is particularly prejudiced in terms of short‐termist behaviour. The observed UK myopic outlook, however, may be more apparent than real. We hypothesize that UK investors are highly sensitive to uncertainty over future cash flows—a feature which is not being captured by traditional theoretical models. Motivated by the ‘option value’ approach, the evidence shows that uncertainty about UK economic conditions, as proxied by the spread between mortgage rates and base rates, can go some way in explaining the reported UK anomaly.