Is Active Investing a Zero-Sum Game?
59 Pages Posted: 6 Feb 2018 Last revised: 1 Oct 2018
Date Written: September 16, 2018
To study the hypothesis whether active investing is a zero-sum game, we analyze the alpha of active and index mutual funds from a global sample of more than 60,000 equity and fixed income funds. Using a new robust statistical test, we cannot reject this hypothesis for the vast majority of investment categories. We also find that the average active fund has less exposure to traditional risk factors, but higher sensitivity to alternative risk premia. Fund persistence and the impact of size and fees adds further support to the hypothesis.
Keywords: active investing, index investing, mutual funds, robust alpha test
JEL Classification: C12, G10, G11, G20, G23
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