Active Versus Passive Investing Ii: Towards an Optimal Combination Solution

D R Wessels and J D Krige

Studies in Economics and Econometrics, 2005, vol. 29, issue 2, 35-54

Abstract: AS shown in the first article, index investing, despite its superior performance on average, is not a low risk strategy and investors will experience volatile returns. Over time index investing and active management repeatedly replaced one another as the dominant investment strategy. A fundamentalist approach about any one of the strategies is not prudent and it is argued that an integration approach of both strategies will yield the highest reward per unit of risk.When following a strategy of combining both strategies in various combinations over different investment periods, it is demonstrated that the highest reward to risk ratio is attained by increasing index investing relative to active investing with an increase in the investment horizon. Simply put, the longer one's investment term, the more index investing should be followed.In the long run it is difficult for active management to consistently beat the market. Therefore, investment strategies should be aligned with one's faith in the efficiencies of markets over time and should not be overly influenced by the short-term performance records of active managers.

Date: 2005
References: Add references at CitEc
Citations:

Downloads: (external link)
http://hdl.handle.net/10.1080/10800379.2005.12106385 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:taf:rseexx:v:29:y:2005:i:2:p:35-54

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/rsee20

DOI: 10.1080/10800379.2005.12106385

Access Statistics for this article

Studies in Economics and Econometrics is currently edited by Willem Bester

More articles in Studies in Economics and Econometrics from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().