Is Active Investing Worse than a Zero-Sum Game?

61 Pages Posted: 6 Feb 2018 Last revised: 20 Aug 2018

Markus Leippold

University of Zurich - Department of Banking and Finance; University of Zurich - Faculty of Economics, Business Administration and Information Technology

Roger Rüegg

University of Zurich - Department of Banking and Finance; Cantonal Bank of Zurich

Date Written: August 20, 2018

Abstract

To tackle this longstanding question, we analyze the alpha of active and index mutual funds from a large global sample of more than 60,000 equity and fixed income funds. Using a new robust statistical test, we cannot reject the hypothesis of a zero-sum game after costs for a vast majority of investment categories. We also find that the average active fund shows a lower exposure to the traditional risk factors, but higher sensitivity to alternative risk premia. Exploring fund persistence and the impact of size and fees adds further evidence for the zero-sum game hypothesis.

Keywords: active investing, index investing, mutual funds, robust alpha test

JEL Classification: C12, G10, G11, G20, G23

Suggested Citation

Leippold, Markus and Rüegg, Roger, Is Active Investing Worse than a Zero-Sum Game? (August 20, 2018). Available at SSRN: https://ssrn.com/abstract=3107904 or http://dx.doi.org/10.2139/ssrn.3107904

Markus Leippold (Contact Author)

University of Zurich - Department of Banking and Finance ( email )

Plattenstrasse 14
Zürich, 8032
Switzerland

University of Zurich - Faculty of Economics, Business Administration and Information Technology ( email )

Plattenstrasse 14
Zürich, 8032
Switzerland

Roger Rüegg

University of Zurich - Department of Banking and Finance ( email )

Switzerland

Cantonal Bank of Zurich ( email )

Josefstrasse 222
Zurich CH-8010, 8005
Switzerland
0041442924689 (Phone)

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