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Purpose The purpose of this paper is to investigate if Bowman’s Paradox (negative association between risk and return) is caused by managerial myopia. It also attempts to disentangle whether results are more consistent with one or more potential explanations. Design/methodology/approach The paper uses univariate statistics and OLS regressions. Empirically examines the relationship between four risk and return proxies, across a wide ranging time period and utilizing a number of model specifications. Results hold after using three-way clustered errors and using a more robust rolling five year, fixed regression methodology measure. Findings Confirms the existence of the Paradox. Also documents that the association between risk and return is positive in “winner” firms and negative in “loser” firms. Upon further analysis, the earlier negative risk-return relationship is found to entirely be due to the volatility of the (short term) income statement component of the performance terms. Results imply that executives of winner (loser) firms are less (more) likely to manage earnings or engage in other value destroying activities. Research limitations/implications The study is confined by the typical archival study limitations; including potential endogeneity, selection biases and generalizability of the results. Practical implications Anecdotal evidence indicates that the business community makes extensive use of these performance measures. These performance measures are also pervasive in academic research. Given the importance of controlling for both managerial and firm performance, a good performance proxy is quintessential. Originality/value Although over 30 years have passed since Bowman (1980) first observed the negative correlation, to date, no consensus explanation exists. Findings suggest that Bowman’s Paradox, is potentially a manifestation of managerial myopia. Thus, this result contributes to several existing research streams.

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This paper reevaluates the cross‐sectional effect of institutional ownership on idiosyncratic volatility by conditioning on institutions' investment horizon. Prior literature establishes a positive link between growing institutional ownership and idiosyncratic volatility. However, this effect may vary depending on the type of institutional ownership. We document that short‐term (long‐term) institutional ownership is positively (negatively) linked to idiosyncratic volatility in the cross section. These opposite effects persist after controlling for institutional preferences and information‐based trading and remain qualitatively unchanged after controlling for endogeneity. This suggests that short‐term (long‐term) institutions exhibit higher (lower) trading activity, which increases (decreases) idiosyncratic volatility.

This paper reevaluates the cross-sectional effect of institutional ownership on idiosyncratic volatility by conditioning on institutions' investment horizon. Prior literature establishes a positive link between growing institutional ownership and idiosyncratic volatility. However, this effect may vary depending on the type of institutional ownership. We document that short-term (long-term) institutional ownership is positively (negatively) linked to idiosyncratic volatility in the cross section. These opposite effects persist after controlling for institutional preferences and information-based trading and remain qualitatively unchanged after controlling for endogeneity. This suggests that short-term (long-term) institutions exhibit higher (lower) trading activity, which increases (decreases) idiosyncratic volatility.1 Brandt et al. (2010) show that by 2003, aggregate IV had decreased to pre-1990s levels. They find no evidence that institutional investors caused the increase in IV in early 2000. As such, the authors conclude that the increase could have been caused by retail investors. 2 See Jones and Lipson (2003) and Kaniel et al. (2008) for evidence of institutional investor dominance in the financial market. 3 See Karpoff (1987) for a review on the early literature in this area. His synthesis of previous research concludes that while there is a positive correlation between the absolute value of price changes and volume, the relation between price changes per se and volume is non-monotonic and asymmetric (i.e., the correlation between volume and positive price changes is positive, while that between volume and negative price changes is negative). Schwert (1989) and Gallant et al. (1992) also provide good reviews of the empirical and theoretical research in this area.