Abstract

http://ssrn.com/abstract=1532268
 
 

References (45)



 
 

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On the Size of the Active Management Industry


Lubos Pastor


University of Chicago - Booth School of Business; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Robert F. Stambaugh


University of Pennsylvania - The Wharton School; National Bureau of Economic Research (NBER)

July 23, 2012

CRSP Working Paper

Abstract:     
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 the growth of indexing modestly reduced the share of active management to its current size. At this size, better performance is expected by investors who believe in decreasing returns to scale. Such beliefs persist because persistence in industry size causes learning about returns to scale to be slow. The industry should shrink only moderately if its underperformance continues.

Number of Pages in PDF File: 44

Keywords: active management, returns to scale, learning, mutual funds

JEL Classification: G10, G20

working papers series





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Date posted: January 6, 2010 ; Last revised: July 24, 2012

Suggested Citation

Pastor, Lubos and Stambaugh, Robert F., On the Size of the Active Management Industry (July 23, 2012). CRSP Working Paper. Available at SSRN: http://ssrn.com/abstract=1532268 or http://dx.doi.org/10.2139/ssrn.1532268

Contact Information

Lubos Pastor
University of Chicago - Booth School of Business ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-834-4080 (Phone)
773-702-0458 (Fax)
HOME PAGE: http://www.ChicagoGSB.edu/fac/lubos.pastor/
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Robert F. Stambaugh (Contact Author)
University of Pennsylvania - The Wharton School ( email )
The Wharton School, Finance Department
University of Pennsylvania
Philadelphia, PA 19104-6367
United States
215-898-5734 (Phone)
215-898-6200 (Fax)

National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
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