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We argue that active management's popularity is not puzzling despite the industry's poor track record. Our explanation features decreasing returns to scale: As the industry's size increases, every manager's ability to outperform passive benchmarks declines. The poor track record occurred before...
Persistent link: https://www.econbiz.de/10003953890
Persistent link: https://www.econbiz.de/10009295351
We analyze the equilibrium size of the active management industry and the role of historical data - how investors use it to decide how much to invest in the industry, and how researchers use it to judge whether the industry's size is reasonable. As the industry's size increases, every manager's...
Persistent link: https://www.econbiz.de/10013134007
A plot of expected returns versus betas obeys virtually no relation to an inefficient index portfolio's mean-variance location. If the index portfolio is inefficient, then the coefficients and R- squared from an ordinary-least-squares regression of expected returns on betas can equal essentially...
Persistent link: https://www.econbiz.de/10013118691
Extremely long odds accompany the chance that spurious-regression bias accounts for investor sentiment's observed role in stock-return anomalies. We replace investor sentiment with a simulated persistent series in regressions reported by Stambaugh, Yu and Yuan (2012), who find higher long-short...
Persistent link: https://www.econbiz.de/10013103525
Extremely long odds accompany the chance that spurious-regression bias accounts for investor sentiment's observed role in stock-return anomalies. We replace investor sentiment with a simulated persistent series in regressions reported by Stambaugh, Yu and Yuan (2012), who find higher long-short...
Persistent link: https://www.econbiz.de/10013065851
We study tradeoffs among active mutual funds' characteristics. In both our equilibrium model and the data, funds with larger size, lower expense ratio, and higher turnover hold more-liquid portfolios. Portfolio liquidity, a concept introduced here, depends not only on the liquidity of the...
Persistent link: https://www.econbiz.de/10012853961
We argue that active management's popularity is not puzzling despite the industry's poor track record. Our explanation features decreasing returns to scale: As the industry's size increases, every manager's ability to outperform passive benchmarks declines. The poor track record occurred before...
Persistent link: https://www.econbiz.de/10013148870
Greater skill of active investment managers can mean less fee revenue in a general equilibrium. Although more-skilled managers earn more revenue than less-skilled managers, greater skill for active managers overall can imply less revenue for their industry. Greater skill allows managers to...
Persistent link: https://www.econbiz.de/10012479976
We argue that active management's popularity is not puzzling despite the industry's poor track record. Our explanation features decreasing returns to scale: As the industry's size increases, every manager's ability to outperform passive benchmarks declines. The poor track record occurred before...
Persistent link: https://www.econbiz.de/10012463004