Active Versus Passive Investment

Moshe Levy () and Richard Roll ()
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Moshe Levy: Hebrew University of Jerusalem
Richard Roll: Emeritus, UCLA

Chapter Chapter 5 in Mutual Fund Selection, 2024, pp 79-95 from Springer

Abstract: Abstract About 92% of active mutual funds underperform the S&P500 index. Moreover, the persistence of fund performance over time is very weak, making it difficult to identify in advance the minority of active funds that will beat the index in the future. The annual aggregate loss due to active investing is estimated at $235 billion. This loss can be decomposed into an inefficient portfolio composition component of $186 billion and a $49 billion component, which is a wealth transfer from investors to funds as fees.

Keywords: Active management; Passive management; Market index; Management fees; Sharpe ratio; Deadweight loss (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1007/978-3-031-69758-6_5

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