How Active Management Survives

Posted: 12 Nov 2019

See all articles by J.B. Heaton

J.B. Heaton

One Hat Research LLC; J.B. Heaton, P.C.

Ginger L. Pennington

University of Chicago - Booth School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: April 29, 2019

Abstract

There is much evidence that passive equity strategies dominate active equity management, but many investors remain committed to active investing despite its poor relative performance. We explore the behavioral‐economic hypothesis that investors fall prey to the conjunction fallacy, believing good returns are more likely if investment is accompanied by hard work. This is an especially plausible manifestation of the conjunction fallacy, because in most areas of life, hard work leads to greater success than laziness. Our internet survey results show that from 30% to over 60% of higher‐income, over‐30 individuals fall prey to the conjunction fallacy in this context, raising significant questions for law and regulatory policy, including whether actively managed equity products should carry warnings, at least for retail investors.

Full Text Available Here: https://doi.org/10.1002/cfp2.1031

Suggested Citation

Heaton, J.B. and Pennington, Ginger L., How Active Management Survives (April 29, 2019). Financial Planning Review, Vol. 2, Issue 1, March 2019. Available at SSRN: https://ssrn.com/abstract=3485677

J.B. Heaton (Contact Author)

One Hat Research LLC ( email )

20 West Kinzie
17th Floor
Chicago, IL 60654
United States
312-257-3900 (Phone)

HOME PAGE: http://onehatr.com

J.B. Heaton, P.C. ( email )

Chicago, IL
United States
(312) 487-2600 (Phone)

HOME PAGE: http://jbheaton.com

Ginger L. Pennington

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

Register to save articles to
your library

Register

Paper statistics

Abstract Views
104
PlumX Metrics