Is Active Investing Worse than a Zero-Sum Game?
61 Pages Posted: 6 Feb 2018 Last revised: 20 Aug 2018
Date Written: August 20, 2018
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
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