Active Investing as a Negative Sum Game: A Critical Review

Journal of Investment Management, Forthcoming

20 Pages Posted: 23 Aug 2019 Last revised: 22 Jan 2020

See all articles by Geoff Warren

Geoff Warren

Australian National University (ANU) - Research School of Finance, Actuarial Studies and Statistics

Date Written: January 22, 2020

Abstract

The literature on whether active management adds value is examined through the prism of the proposition by Sharpe (1991) that active investing is a negative sum game after costs. Focal points include how active fund research does not directly test Sharpe’s proposition and seems inconsistent with it acting as a constraint, and the gaps that may leave room for active managers to outperform. It is argued that greater attention needs to be paid to the importance of investor circumstances and market conditions for the active-passive choice, in particular the fee paid, investor objectives and asset category.

Keywords: fund management, active versus passive, zero-sum game

JEL Classification: G11, G23

Suggested Citation

Warren, Geoffrey J., Active Investing as a Negative Sum Game: A Critical Review (January 22, 2020). Journal of Investment Management, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3441036 or http://dx.doi.org/10.2139/ssrn.3441036

Geoffrey J. Warren (Contact Author)

Australian National University (ANU) - Research School of Finance, Actuarial Studies and Statistics ( email )

CBE Building 26C
Kingsley Sreet, Acton
Canberra, ACT 0200
Australia

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