Symposium Article: The Myth of the Ideal Investor

20 Pages Posted: 7 May 2018 Last revised: 11 Jun 2018

Date Written: August 5, 2017


Critiques of specific investor behavior often assume an ideal investor against which all others should be compared. This ideal investor figures prominently in the heated debates over the impact of investor time horizons on firm value. In much of the commentary, the ideal is a long-term investor that actively monitors management, but the specifics are typically left vague. That is no coincidence. The various characteristics that we might wish for in such an investor cannot peacefully coexist in practice. If the ideal investor remains illusory, which of the real-world investor types should we champion instead? The answer, I argue, is none. The corporate finance ecosystem evolves at such a rapid pace that interventions specifically designed to encourage particular types of investors are increasingly likely to be ineffective or even counterproductive: we are destined to place our bets on the wrong horse, time and again. To illustrate the difficulty, this Article briefly sketches the evolution of three types of shareholders frequently advanced as exemplars based on their time horizons: major mutual fund groups, activist hedge funds, and private equity funds. Based on their behavior to date, there is little support for policies aimed either at favoring or penalizing such investors’ participation in the capital markets generally, and corporate governance specifically.

Keywords: firm value, investor time horizons, investment funds

JEL Classification: K22, G14, G23

Suggested Citation

de Fontenay, Elisabeth, Symposium Article: The Myth of the Ideal Investor (August 5, 2017). Duke Law School Public Law & Legal Theory Series 2018-36, Available at SSRN: or

Elisabeth De Fontenay (Contact Author)

Duke University School of Law ( email )

210 Science Drive
Box 90362
Durham, NC 27708
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
PlumX Metrics