Sénéchal proposes a new analytical framework—the empirical law of active management—to assess the breadth, or diversification, and the skill of a portfolio manager. The framework requires no assumptions regarding a manager’s asset return expectations or investment process. The framework...

Why do investors entrust active mutual fund managers with large sums of money while receiving negative excess returns on average? Our explanation is that investors have a coarser information set than fund managers which leads them to systematically misinterpret managers' skill. When investors...