Passive Investing: The Emperor Exposed?

Carosa, Christopher
October 2005
Journal of Financial Planning;Oct2005, Vol. 18 Issue 10, p54
Academic Journal
• Traditional studies of the passive versus active management debate appear to contain two flaws that can dramatically affect results. • The snapshot-in-time anomaly creates period dependency, leading to inconsistent results. • The equal-weighted anomaly produces results that while statistically accurate, fail to accurately reflect the results experienced by actual investors. • An analysis using rolling 12-month returns appears to reduce, if not eliminate, the snapshot-in-time phenomenon, leading to more consistent results. • An analysis using asset-weighted performance data to more accurately reflect the actual behavioral patterns of investors appears to produce more significant results. • An analysis of investment return data from January 1975 through June 2004 shows active investors in U.S. equity funds performed better than the S&P 500 two-thirds of the time and by an average of 2 percent annually. • Using both modern portfolio theory and behavioral finance measurements, the investors in active funds appear to have taken less actual risk than the index. • These results have broad implications, not only for financial planners, but for public policy issues such as ERISA and Social Security reform.


Related Articles

  • Less Can Be More When It Comes to a Portfolio. Liptow, Jennifer A. // Financial Planning;Jan2005, Vol. 35 Issue 1, p22 

    Presents information on a study which compares the success of stock trades by households with fewer stocks in their portfolios versus the trades of households with more diversified account. Authors of the study; Major finding of the research; Differences of the rates of returns for concentrated...

  • How Do Decision Frames Influence the Stock Investment Choices of Individual Investors? Kumar, Alok; Lim, Sonya Seongyeon // Management Science;Jun2008, Vol. 54 Issue 6, p1052 

    This study examines whether the framing mode (narrow versus broad) influences the stock investment decisions of individual investors. Motivated by the experimental evidence, which suggests that separate decisions are more likely to be narrowly framed than simultaneous decisions, we propose trade...

  • Expected Return and Portfolio Rebalancing. Davidsson, Marcus // International Journal of Economics & Finance;Aug2011, Vol. 3 Issue 3, p15 

    The purpose of this study is to discuss portfolio theory. More specifically how an investor can maximize a portfolio's expected return while at the same time trying to minimize portfolio risk. This will be done by looking at both international and Kuwaiti stock market data. One important...

  • A closer look at investment performance.  // Finweek;1/15/2015, p49 

    The article presents an analysis of investment returns in South Africa since 1995. Findings include the popularity of equities in the asset class, the significant performance of bonds and cash, and the indicator of future performance. The things that investors could expect by 2025 are mentioned...

  • DISTRIBUTION MOMENTS AND EQUILIBRIUM: REPLY. Jean, William H. // Journal of Financial & Quantitative Analysis;Jan1972, Vol. 7 Issue 1, p1435 

    This article presents the author's reply to a comment made about the paper "Distribution Moments and Equilibrium." The author clears up a misinterpretation that was made in the comment about the assumed choice an investor makes. The author presents a new diagram showing the changes the occur as...

  • Avoid snap decisions to invest smarter. Barba Jr., Dennis // Crain's Cleveland Business;7/18/2005, Vol. 26 Issue 29, p22 

    The article discusses how investors can judiciously use their money to increase their profits. The authors notes that most individual investors fail to understand the inherent objective of a financial services firm, which is to generate profits for their shareholders. Much of their revenue is...

  • Portfolio Management. English, Marlanda // Portfolio Management -- Research Starters Business;4/1/2017, p1 

    There are many reasons for investing. Some investors do it for a living while others pursue it as a hobby. Some invest for a quick return while others look for long term benefit. All investors large and small engage in some type of portfolio management. Portfolio management is how an investor...

  • Considering the impact of rising interest rates on our portfolios. LE ROUX, SHAUN // Finweek;6/11/2015, p30 

    The article discusses the impact of increasing interest rates on the portfolios of asset management company PSG Asset Management as of 2015. The company's investment analysis of securities from cash to high risk equities is explored. The need for investors to consider the rate of return and the...

  • Portfolio Concentration and the Performance of Individual Investors. Ivković, Zoran; Sialm, Clemens; Weisbenner, Scott // Journal of Financial & Quantitative Analysis;Sep2008, Vol. 43 Issue 3, p613 

    This paper tests whether information advantages help explain why some individual investors concentrate their stock portfolios in a few stocks. Stock investments made by households that choose to concentrate their brokerage accounts in a few stocks outperform those made by households with more...


Read the Article


Sorry, but this item is not currently available from your library.

Try another library?
Sign out of this library

Other Topics