Challenging the Conventional Wisdom on Active Management: A Review of the Past 20 Years of Academic Literature on Actively Managed Mutual Funds

Financial Analysts Journal, Vol. 75, No. 4 (Fourth Quarter 2019)

50 Pages Posted: 14 Sep 2018 Last revised: 30 Oct 2019

See all articles by Martijn Cremers

Martijn Cremers

University of Notre Dame; ECGI

Jon A. Fulkerson

University of Dayton

Timothy B. Riley

University of Arkansas - Department of Finance

Date Written: May 31, 2019

Abstract

Just over 20 years have passed since the publication of Carhart’s landmark 1997 study on mutual funds. Its conclusion—that the data did “not support the existence of skilled or informed mutual fund portfolio managers”—was the capstone of an academic literature beginning with Jensen (1968) that formed the ‘conventional wisdom’ that active management does not create value for investors. In this paper, we review the literature on active mutual fund management since the publication of Carhart (1997) to assess the extent to which current research still supports the conventional wisdom. Our review of the most recent literature suggests that the conventional wisdom is too negative on the value of active management.

Keywords: Active Management, Mutual Funds, Skill, Alpha, Value

JEL Classification: G10, G11, G14, G20, G23

Suggested Citation

Cremers, K. J. Martijn and Fulkerson, Jon A. and Riley, Timothy Brandon, Challenging the Conventional Wisdom on Active Management: A Review of the Past 20 Years of Academic Literature on Actively Managed Mutual Funds (May 31, 2019). Financial Analysts Journal, Vol. 75, No. 4 (Fourth Quarter 2019), Available at SSRN: https://ssrn.com/abstract=3247356 or http://dx.doi.org/10.2139/ssrn.3247356

K. J. Martijn Cremers

University of Notre Dame ( email )

P.O. Box 399
Notre Dame, IN 46556-0399
United States

ECGI ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Jon A. Fulkerson

University of Dayton ( email )

300 College Park
Dayton, OH 45469
United States

Timothy Brandon Riley (Contact Author)

University of Arkansas - Department of Finance ( email )

Fayetteville, AR 72701
United States

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